WASHINGTON (AP) - Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that the administration and federal regulators are closely monitoring financial markets in the wake of the biggest sell-off in stock prices in more than five years but so far the markets appear to be “working well.”
Facing his first market crisis since taking the top Fed job a year ago, Bernanke answered questions on Tuesday’s market plunge with a calm, matter-of-fact demeanor, explaining developments in plain language without any of the famously opague language that his predecessor, Alan Greenspan, sometimes used.
In what might have been a reference to Greenspan, Bernanke testified at one point that there did not appear to be a “single trigger” to Tuesday’s sharp sell-off, which saw the Dow Jones industrial average fall by 416.02 points.
Some analysts believe that Greenspan’s comments over the weekend that there was a possibility of a recession by the end of the year along with a sharp drop in China’s Shanghai stock market contributed to Tuesday’s big drop on Wall Street, which saw the Dow Jones industrial average fall by 416.02 points.
But Bernanke let members of the House Budget Committee know that he didn’t intend to assign blame.
“There didn’t seem to be any single trigger of the market correction we saw yesterday,” he said in response to a question. “I don’t think it would be useful for me to try to parse the movement into the components associated with different pieces of news or pieces of information.”
On Wall Street, investors seemed to take comfort from Bernanke’s comments that there was no single trigger to the big selloff. At midday, the Dow Jones average was up 42 points after having been up by more than 100 points earlier in the session.
Despite Tuesday’s market turmoil, Bernanke said he did not believe there had been a major change in the outlook for the economy. He repeated that the Fed expects “moderate growth” this year.
Bernanke said that the Fed along with the president’s working group, which was formed in the wake of the 1987 stock market crash, had been closely monitoring market developments. He said that the markets “seem to be working well.”
He said there had been “no material change in our expectations for the U.S. economy since I last reported to Congress” when he delivered the Fed’s latest economic outlook two weeks ago.
“We are looking for moderate growth in the U.S. economy going forward,” Bernanke said. He said that if current corrections under way in housing and the amount of inventories being held by business stabilize in coming months, the economy should begin to rebound from its current slowdown by the end of the year.
Bernanke’s comments on the stock market decline occurred at a hearing where he delivered virtually identical warnings as he did in a Senate hearing last month about the need to deal with looming budget problems in the government’s giant benefit programs of Social Security, Medicare and Medicaid.
At the White House Wednesday, press secretary Tony Snow said that President Bush had called Treasury Secretary Henry Paulson to get a readout on the stock market plunge. Asked what advice the president would give to investors, Snow said: “The president does not give advice to investors in the stock market.”
Greenspan, speaking by satellite to an audience in Hong Kong on Sunday night, had said that the current five-year-old economic expansion was beginning to show early signs of the types of imbalances that could lead to a recession. He said it was possible the U.S. could be in a recession by the end of this year, although he noted that most private forecasters did not consider that a likely outcome.
Greenspan’s comments and the steep drop in the Shanghai market raised worries that investors needed to focus more on the risks facing the global economy.
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