US stocks lost more ground after Federal Reserve Chief Ben Bernanke highlighted risks to US economic growth and signaled a steady hand on interest rates. Shares of some of the biggest US corporations, General Motors, retailer Wal-Mart and Boeing fell, leading the blue-chip Dow Jones Industrial Average to its third straight losing session. The Dow Jones industrials fell nearly 100 points. Fed Chief has repeated his concern that core inflation remained ‘uncomfortably high,’ diminishing hopes that the Fed might soon reduce interest rates.
Ben Bernanke has recently said that risks to the economy have grown, in particular from soft business investment and weakening housing, but with inflation still too high, the Fed is comfortable with keeping interest rates steady for now. The Fed has surprised markets by signaling that it is less inclined to raise rates. Bernanke further suggested in testimony before the Joint Economic Committee of Congress yesterday that while his forecast for the economy has changed little, he sees more risks that could cause growth to fall short of that forecast.
That statement has obviously created some confusion about which way the Fed was inclined on interest rates as it emphasized that risk have increased on both sides. However, in present economic circumstances when the Federal Reserve remained focused on inflation, any immediate rate cut is unlikely. On the other hand, if taking the recent weakness in economic data into consideration a rate hike also does not seem to be imminent. Therefore, it would be safer to conclude that the central bank would keep rate on hold for a while.
Bernanke has further said that the drag from residential investment should wane. Consumer spending appears solid, and business investment seems likely to post moderate gains. Though he suggested that business spending in the US has slowed but also assured that the weakness in the housing and manufacturing sectors had still not spilt into other areas of the economy.
The careful Fed chief also said that he does not believe that the nation will slip into a recession, rejecting the notion raised by predecessor Alan Greenspan that the economy’s expansion could be in danger.
