Bernanke Says Markets Working Well
Wednesday February 28, 11:16 am ET
By Martin Crutsinger, AP Economics Writer
Bernanke Says Markets Appear to Be Working Well With No Big Change in Economic Outlook
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."
Bernanke said there did not appear to be a "single trigger' to Tuesday's big drop, which saw the Dow Jones Industrial average fall by 416.02 points.
Testifying before the House Budget Committee, Bernanke also said there had been no major change in the outlook for the economy, reiterating 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 about the need to deal with looming budget problems in the government's giant benefit programs of Social Security, Medicare and Medicaid.
The market decline on Tuesday was triggered by a steep fall in stock prices on China's Shanghai market, which triggered big declines in other stock markets around the world. It represented the biggest stock market turmoil that has occurred since Bernanke took over as Fed chairman on Feb. 1, 2006, succeeding Alan Greenspan.
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.
Bernnake said that he did not think it would be useful to try to single out the various factors that contributed to Tuesday's market decline.