Federal Reserve chairman nominee Ben Bernanke didn't do anything to rattle the stock market during his Senate confirmation hearing today, but the Senate finance committee threatened to take away some of Wall Street's favorite tax breaks.
Demonstrating why he was picked by President Bush to run the Fed, Bernanke told senators his top priority will be to continue the policies of Alan Greenspan.
He also promised not to be swayed by political influence and never to let inflation get out of hand--a pledge that encouraged bond traders to drive long-term interest rates back down.
Bernanke seemed to be on the way to fast-track approval, which would be just fine with Wall Street. With so many misgivings about Washington's handling of the ever-growing trade and budget deficits, finding a strong replacement for Greenspan is important to maintaining investor confidence.
But investors may not be enthusiastic about the tax package coming out of the Senate Finance Committee--even though it does tackle the budget deficit.
Committee Chairman Charles Grassley of Iowa today dropped provisions to extend the tax cuts on capital gains and stock dividends. Passed in 2003, the cuts are scheduled to end in 2010.
The Securities Industry Association is lobbying hard to keep tax rates low for dividends and stock market gains. Some economists say the low rates are helping the market
But Senate support for the dividend and capital gains tax breaks is fading as the government budget deficit rises. Grassley's decision today set the stage for a Senate floor fight over the issue.
Stocks faded during the afternoon as the focus of Washington news reports shifted from Bernanke to taxes, but the market's move was too minimal to mean much.
Neither the latest inflation report nor new figures on retail sales had any significant impact either. Inflation at the wholesale level was up--mostly because of energy costs--the producer price index showed. Retail sales held up better than expected, but traders drove down the shares of Target after that chain cautioned that Christmas is not off to a great start.
At the closing bell the Dow Jones industrial average was down 11 points to 10,686.44. The Standard & Poor's 500 stock index fell 5 points to 1,229.01. The Nasdaq Stock Market composite index fell 14 to 2,186.74.