Fed Chairman Ben Bernanke told the House Budget Committee yesterday that his faith in the stability of the U.S. economy remains unshaken despite disappointing economic data reports and Tuesday's sharp selloffs. "Taking all the new data into account," he said, "there is really no material change in our expectations for the U.S. economy since I last reported to Congress" on February 14 and 15. Bernanke continues to expect "moderate growth" in the economy. He even suggested that the economy might gain strength, provided the housing slump stabilizes and high manufacturing inventories are corrected. Nor is he concerned by the Commerce Department's sharp downward revision of its Q4 GDP estimate to 2.2% from 3.5%, stating the new figure "is actually more consistent with our overall view of the economy than were the original numbers." Bernanke cited the subprime mortgage market as a catalyst in the selloff, but does not believe it is a significant factor affecting the overall economy. Several analysts concurred that Bernanke's soothing words and calm demeanor were contributing factors in the rally of U.S. stocks yesterday. Former Fed Chair Alan Greenspan stated earlier in the week that he can envision a U.S. recession this year, a statement he later clarified as a possibility, not a probability. Yields showed a stable floor after Bernanke's comments, and the dollar rose along with equities.
Sources: MarketWatch, Wall Street Journal, Bloomberg
Commentary: The Market Decline: Keeping The Big Picture in Focus • Boo Hoo . . . . Stock Market Crash Indeed! • Market Decline: Not to Panic - 400 Points Is No Big Deal • China Selloff Shakes Markets Around World
ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
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