Markets Don't Listen to Bernanke

Bernanke Talks, Markets Don't Listen
Steve Schaefer, 02.14.08, 12:00 PM ET

Federal Reserve Chairman Ben Bernanke sounded an cautiously optimistic note on Capitol Hill Thursday, but Wall Street dove anyway during his testimony.

The Fed chief forecast sluggish U.S. economic growth in the near term, giving way to a rebound later in 2008 as monetary policy actions and the government's fiscal stimulus package begin to take effect. Bernanke also predicting a moderation of inflation, while acknowledging that downside risks to growth remain, including deterioration of housing or labor markets and further tightening of credit conditions. (See: "Stocks Lower Ahead Of Bernanke Testimony")

Still, both Bernanke and Treasury Secretary Henry Paulson said they believe the U.S. economy will avoid slipping into a recession.

Investors didn't buy it though, as stocks dropped during the Senate Banking Committee hearing in Washington. The Dow was down 113 points, or 0.9%, to 12,439, while the S&P 500 slid 11 points, or 0.8%, to 1,356, and the Nasdaq was off 25 points, or 1.1%, to 2,349.

The hearing, which also included SEC Chairman Christopher Cox, also touched on efforts by New York State insurance regulator Eric Dinallo to rescue bond insurers.

On Thursday Dinallo will testify in front of the House Subcommittee on Capital Markets, and he is expected to say he will consider allowing bond insurers to separate their stronger municipal bond business from the riskier CDO-related operations that have caused the current turmoil.

MBIA and Ambac Financial Group are the highest-profile bond insurers, and reports of bailouts and rescue plans have surrounded each for weeks.

On Tuesday, billionaire Warren Buffett got involved, offering to re-insure $800 billion worth of bonds to inject needed capital into the two bond giants and privately held Financial Guaranty Insurance. (See: "Buffett Circles Over Bond Insurers")

Banking and tech stocks were on the decline Thursday too. Citigroup fell 56 cents, or 2.1%, to $25.78, while chip maker Intel dropped 66 cents, or 3.1%, to $20.55.

Apparel company Liz Claiborne was also among the wounded firms, dropping $3.38, or 15.1%, to $19.05, after saying it will miss fourth-quarter expectations.

Meanwhile, Comcast, the largest U.S. cable operator, gained $1.19, or 6.7%, to $19.00, on a strong earnings report. Fourth-quarter profit jumped 54% thanks largely to stronger sales.

Forbes