AP
Stocks Fall on Bernanke Inflation Talk
Wednesday March 28, 1:49 pm ET
By Tim Paradis, AP Business Writer
Stocks Slide As Fed Chief Testifies on Inflation; Durable Goods Report Falls Short
NEW YORK (AP) -- Stocks slid Wednesday after Federal Reserve Chairman Ben Bernanke chided investors who may have looked past long-standing concerns about inflation following comments last week from the central bank. The Dow Jones industrials at times fell more than 100 points.
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In Capitol Hill testimony, Bernanke said while core inflation slowed "modestly" in the second half of 2006, recent readings remain "uncomfortably high." He also said troubles among some mortgage lenders that cater to those with poor credit doesn't appear to have spread to the broader economy, though he added that the situation warrants further observation.
Stocks rallied last week after investors interpreted language from the Fed as opening the way to the possibility of a reduction in interest rates. But concerns about stubborn inflation could upend investors' hopes for a reduction in rates, even as the economy continues to cool.
"I think what the Fed is trying to tell us is that it is between a rock and a hard place. And when you're between a rock and a hard place you just can't move," said Drew Matus, senior economist at Lehman Brothers Holdings Inc.
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Broader stock indicators also fell. The Standard & Poor's 500 index fell 4.48, or 0.31 percent, to 1,424.13, and the Nasdaq composite index fell 9.10, or 0.37 percent, to 2,428.33.
Bernanke's testimony before Congress' Joint Economic Committee on the country's economic outlook comes a day after renewed concerns about the housing market helped send stocks lower.
The Dow Jones industrials had their biggest pullback in two weeks Tuesday after a report showing a drop in prices of single-family homes had investors theorizing that the housing market might continue to sour and hurt consumer spending.
Bonds rose after Bernanke's comments. The yield on the benchmark 10-year Treasury note fell to 4.59 percent from 4.61 percent late Tuesday.
Matus contends the markets might have overestimated the Fed's ability to lower interest rates.
"In reality, there's a lot of uncertainty. You don't move forward unless you can see the path and I don't think they can see the path," he said of the central bank. The Fed has left short-term interest rates unchanged at its last six meetings, interrupting a string of 17 straight increases that began in 2004.
"You can't cut rates to try and spark growth and hope to contain inflation at the same time. That just doesn't work," Matus said.
The dollar was mixed against other major currencies, while gold prices rose.
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Beyond concerns about housing, Wall Street is watching as oil prices rise amid political tensions in the Middle East over the detention by Iran of British sailors and marines. Oil prices spiked following rumors, which the U.S. military denied, that Iran had fired a missile at a U.S. ship in the Persian Gulf. Weekly government inventory data showed a decline in stores of crude oil, gasoline and distillates.
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