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Bernanke's lack of urgency gives markets a chill

Was it something he said -- or something he didn’t say? Or both?

Stocks slid and investors again rushed into Treasury securities after Federal Reserve Chairman Ben S. Bernanke told the Senate on Wednesday that the economic outlook was “unusually uncertain” but said the central bank wasn’t planning any immediate new help for the economy.

The Dow Jones industrial average fell as much as 183 points after the Fed chief’s prepared remarks were released at 11 a.m. PDT. The Dow ended the session down a modest 109.43 points, or 1.1%, to 10,120.53.

The bull market in Treasuries, meanwhile, rolled on: The 10-year T-note yield dropped to 2.88%, down from 2.93% on Tuesday and a new 15-month low. The T-note yield has plunged from nearly 4% in early April as many investors have grown increasingly worried about the recovery and have looked for a haven for their money.

Benjuly21 In the text of his semiannual testimony to Congress on monetary policy, Bernanke didn’t commit to providing more help for the economy but said that the Fed would “remain prepared to take further policy actions as needed to foster a return to full utilization of our nation's productive potential in a context of price stability.”

Although most Fed watchers had said in advance that they weren’t expecting Bernanke to suddenly sound urgent about the economy’s recent slowdown, “The financial markets seemed disappointed that he did not offer any specifics about a contingency plan for additional easing should conditions warrant,” said David Resler, economist at Nomura Securities in New York.

In the question-and-answer session with senators, Bernanke outlined steps the Fed could take, including restarting its now-expired program of buying government bonds and mortgage bonds for its own balance sheet -- a way to try to drive long-term interest rates even lower -- or getting more specific about how long it would expect to keep short-term rates near zero.

“We need to continue to evaluate those options,” Bernanke said. “As I said, we’re not prepared to take any specific steps in the near term, particularly since we’re still also evaluating the recovery, the strength of the recovery. But I do think that there is some potential for some of those steps to be effective.”

In response to another question, he said the Fed didn’t consider a double-dip recession a “high-probability event.”

Some investors buying Treasury bonds at these levels must beg to differ. Or they may just figure that a 2.88% 10-year T-note yield provides a fine real return, with the core consumer price index now running at a 0.9% annual rate, the lowest inflation rate in 44 years.

-- Tom Petruno

Photo: Fed Chairman Ben S. Bernanke. Credit: Mary F. Calvert / European Pressphoto Agency

 
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