Markets 'Working Well,' Says Fed Chief
Thursday, March 1, 2007
Federal Reserve Chairman Ben S. Bernanke told Congress yesterday that the markets were "working well" and the outlook for the U.S. economy was upbeat a day after Wall Street suffered its steepest decline in nearly four years.
Bernanke said his view of the economy was unchanged. "We are looking for moderate growth in the economy going forward," he said at a previously scheduled hearing on the budget. His comments helped the Dow Jones industrial average recover 52 of the 416 points it lost on Tuesday.
Two days earlier, Alan Greenspan, the man Bernanke replaced a year ago, had expressed a strikingly different view about the economy. The former Fed chairman said signs were emerging that a recession was possible later this year.
The dueling viewpoints of both men, perhaps the two most influential voices on the markets, reflected the broader uncertainty over where the U.S. economy is heading and left some investors debating which oracle of Wall Street has the greater insight.
Greenspan's remarks were not welcomed by some inside the Fed who viewed them as possibly contributing to the market turmoil.
"It's not right to expect the former Fed chairman to take an oath of silence after he leaves office, but I bet his successors wish he'd stick to writing his memoirs," said Thomas Schlesinger, executive director of the nonprofit Financial Markets Center, which monitors the Fed.
Three economic reports released yesterday added to concerns on Wall Street.
The U.S. economy expanded at a sluggish annual rate of 2.2 percent in the last three months of 2006, the Commerce Department said, far below its original estimate of 3.5 percent.
The department also said new-home sales fell by 16.6 percent in January from the previous month, the steepest drop in 13 years.
A regional economic report showed a weaker-than-expected reading on business purchases in the Midwest. The data are viewed as a bellwether of manufacturing activity nationwide.
Bernanke, who spent his career in academia before joining the government, has attributed the slowdown primarily to the housing slump and welcomed slower growth as a way to dampen price pressures. The Fed believes inflation is too high and worries it may quicken if the economy grows faster.
Greenspan's perspective draws on his years as a business consultant before joining the Fed in 1987. At a business conference in Hong Kong on Monday, he said he saw signs that the current expansion, which began in 2001, was aging.