Bernanke's Comments Lift Stocks To Record Highs
Stocks surged Thursday after the chief of the Federal Reserve sent signals that the central bank wasn't in a hurry to stop helping the economy. When the markets closed, the Standard & Poor's 500 Index was at a record high. Other U.S. indexes were also up, including the Dow Jones Industrial Average, which rose nearly 170 points to a record 15,460.92.
Update at 5 p.m. ET: We've updated some figures in this post to reflect the markets' closing.
Markets had been nervous that the Fed was soon going to start backing away from its efforts to stimulate growth. But remarks by Fed Chairman Ben Bernanke to economists Wednesday in Boston appeared aimed at reassuring investors.
"Highly accommodative monetary policy for the foreseeable future is what's needed for the U.S. economy," Bernanke said, after the minutes of the Fed's latest policy meeting were released.
Those four words — "for the foreseeable future" — appear to have helped reduce investor anxiety by signaling that the Fed is not going to take its foot off the figurative gas pedal anytime soon.
Some Fed watchers are arguing that Bernanke didn't really say anything that he hadn't already said before. But the chairman's repeated emphasis during his remarks that the Fed wasn't changing its basic stance did seem to make a difference.
U.S. stock indexes rallied up about 1 percent immediately following his remarks in after-hours trading Wednesday. And rates declined slightly on the 10-year Treasury note — which correlates strongly to rates on 30-year fixed rate mortgages in the U.S.
In Other Economic News...
The latest numbers suggest U.S. companies that sell wholesale goods have been being more cautious than analysts thought. The May wholesale inventories data shows companies kept their shelves relatively lean. That means these wholesalers were buying less stuff. And as a result, several economists with major forecasting firms lowered their estimates for second-quarter GDP growth to below 1 percent — a very slow growth pace.
At the same time though, consumers have been spending money, so wholesalers probably will have to invest more money to buy more products to restock their shelves. As a result, the research firm Macroeconomic Advisers lowered its estimate for the second quarter to a pace of 0.7 percent. But it also raised its outlook for the third quarter to a 2.8 percent rate.
That's much stronger growth, but the true rate of growth for the economy is most likely somewhere in the middle — around 2 percent. It's also consistent with the ongoing trend of an economy that's recovering, but doing so more slowly than anybody would like.
On the labor-market front, Bernanke said Wednesday that the current official unemployment rate of 7.6 percent, "if anything, overstates the health" of the labor market.
Still, other economists are more optimistic. Mark Zandi of Moody's Economy.com thinks we're on the cusp of achieving more robust growth in the economy – around 3 percent – going forward.