By Nell Henderson
Washington Post Staff Writer
Tuesday, May 2, 2006
Stock prices fell yesterday after CNBC, the financial news cable television network, reported that Federal Reserve Chairman Ben S. Bernanke said investors would be wrong to think the central bank has finished raising interest rates.
Bernanke had told Congress on Thursday that the Fed might pause in its series of interest rate increases, even if high oil prices and strong economic growth threaten to push inflation higher.
Stocks rallied then as investors concluded the Fed is likely to rest after raising its benchmark short-term interest rate just once more in May, for a 16th consecutive hike.
"Ben Bernanke . . . told me over the weekend the media and the markets got it wrong last week in speculating the Fed is done raising interest rates," CNBC anchor Maria Bartiromo said at about 3:15 p.m. during her afternoon program. "I asked him whether the markets got it right after his congressional testimony, and he said, flatly, no."
Stock prices dropped sharply after Bartiromo's description of a conversation she said she held with the new Fed chairman at the White House Correspondents' Association Dinner on Saturday night. The Dow Jones industrial average closed at 11,343.29, down 23.85 points, or 0.2 percent, as investors reconsidered the possibility of several more Fed rate hikes. The Standard & Poor's 500-stock index lost 5.42 points, or 0.4 percent, to close at 1305.19. The Nasdaq composite index fell 17.78, or 0.8 percent, to 2304.79.
Bernanke and the Fed declined to comment on Bartiromo's report. He has not spoken for publication to any other reporters since becoming Fed chairman Feb. 1.
Bernanke did not say Thursday when the Fed might pause or how high it will move short-term interest rates before it stops tightening credit. He said the Fed will be closely monitoring whether the economy slows and whether inflationary pressures ebb as forecast in coming months.
The Fed chairman on Saturday said he was "trying to basically create some flexibility for the Federal Reserve, saying the Fed may pause, but the data will really dictate whether more rate hikes will occur at future meetings," Bartiromo said.
Inflation picked up in March, as consumer incomes and spending rose strongly, the Commerce Department reported yesterday. Consumer prices rose 0.4 percent in March, after edging up just 0.1 percent in February, according to the department's personal consumption expenditure index.
The Fed's preferred gauge, the core PCE index, which excludes food and energy prices, rose 0.3 percent in March, the fastest monthly gain since October. Core inflation was up 2 percent from March of last year, the upper limit of Bernanke's preferred range.Movers
Wal-Mart jumped 90 cents, to $45.93, after the discount retailer said its sales at stores open at least a year grew 6.8 percent in April, better than the 4 percent to 6 percent it had predicted.
Boeing rose 41 cents, to $83.86. It agreed to buy aircraft parts and services supplier Aviall.
Aviall surged $9.26, to $46.96.
Level 3 Communications rose 32 cents, to $5.772. It is acquiring regional telecommunications company TelCove.
Aramark soared $5.79, to $33.90. A group of investors offered almost $5.8 billion to acquire the food-service provider.
Tyson Foods added 11 cents, to $14.71. The world's largest meat processor said it fell to a $127 million loss last quarter, hurt by an oversupply of meat and charges from closing plants.Indexes
New York Stock Exchange composite index fell 9.68, to 8461.75.
American Stock Exchange index rose 7.60, to 2015.43.
Russell 2000 index of smaller-company stocks fell 3.12, to 761.42.Volume
NYSE: 2.48 billion shares, down from 2.54 billion on Friday. Decliners outnumbered advancers 5 to 4.
Nasdaq: 2.13 billion shares, down from 2.56 billion. Decliners outnumbered advancers 5 to 3.Commodities
Crude oil for June delivery: $73.70, up $1.82.
Gold for current delivery: $657.50 a troy ounce, up from $651.80 on Friday.
The Associated Press contributed to this report.