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Wall Street tremble on Bernanke’s Comment

February 7, 2012

Wall Street retreated after Federal Reserve Chairman, Ben Bernanke’s comment that the deteriorating economy pace, rising inflation and looming housing sector will remain a risk to consumer spending and overall economic growth. Amid the inflation and increasing consumer spending apprehension in the future, investors sold off their shares, which adversely affect the Dow and fell 53.33, or 0.38 percent, to 13,918.22. The blue chip index was down by as much as 134 points during the session; a late-afternoon rebound wasn’t unexpected given the market’s recent volatility. While speaking before the House Financial Services panel as part of the central bank’s midyear forecast, Bernanke urges to emphasize more on strengthening economy and clears that inflation risk will remain the Fed’s "predominant" concern. However, experts arraigned Bernanke for creating fear in the mind of investors as they are already reeling from Bear Stearns, hedge funds sparking more subprime fears, and new worries about earnings. Todd Salamone, director of trading at Schaffer’s Investment Research said: Bernanke didn’t really say a whole lot of things that were new, but he added to a combination of seemingly negative events The Fed lowered its 2008 GDP growth forecast to between 2.5 per cent and 2.75 per cent from its February forecast of between 2.75 per cent and 3 per cent. It also lowered its 2007 GDP forecast, as Mr Bernanke warned that the housing market has not yet eased down as he worried that it will continue to fall. Nonetheless, the Fed kept its estimates of core inflation intact, where many Wall Street economists believed they could be lowered, and Mr Bernanke warned that productivity improvements may be slowing – a fact that would put upward pressure on inflation. Core inflation, which excludes often volatile energy and food costs, also rose a moderate 0.2 percent last month. Most big companies have failed to earn profit in the previous quarter ended in June. The yield on the benchmark 10-year Treasury note fell to 5.03 percent from 5.07 percent late Tuesday. The dollar was mixed against other major currencies, while gold shows some sign of improvement. In the middle of lurking market expectations, JPMorgan Chase’s earning rose 20 percent, but firm also remains on guard for possible fallout from the mortgage industry. Inflation remains the most excruciating factor for the economy and fed expect that the domestic interpretation on consumer prices could help ease some concerns about inflation. Investors are hoping rising prices won’t prompt the Federal Reserve to put off an eventual interest rate reduction or even to raise rates. Even if the Fed doesn’t act, higher costs could prompt some consumers to curtail their spending. Such a retrenchment could dent corporate profits. Mr Bernanke’s asserts that moderate inflation may only be temporary, but warned that Fed is watching inflation expectations closely and vociferously rules out an early interest rate cut. Image Via: Washington Post