Bernanke Says Fed Has Plenty Of Options, Doesn't Signal When He'll Use Them

MAKE MONEY BLOG$~In Tuesday’s Forbes Markets Desk video, I discuss a big day for earnings and Ben Bernanke’s latest grilling on Capitol Hill:

Stocks got the rally bulls were hoping for Tuesday, but not without being tested.

The day started to the upside, after big names like Goldman Sachs, Coca-Colaand Johnson & Johnson beat the Street’s consensus earnings view, but the market pulled back after Federal Reserve Chairman Ben Bernanke played it straight during his semiannual monetary policy report to the Senate Banking Committee.

Bernanke reiterated concerns about the second-quarter slowdown in the U.S. economy, noting that nonfarm payrolls growth averaged only 75,000 jobs from April through June alongside soft signals from other corners of the economy while turmoil in financial markets wrought by Europe’s debt crisis strengthened another headwind.

On the flip side: lower oil prices and improving signals from the housing market — including Tuesday morning’s reports that home builder confidence is at its highest level since March 2007.

Lawmakers on both sides of the aisle tried to get Bernanke to bite Tuesday. Tennessee Republican Bob Corker pushed the Fed chief to admit that the looming fiscal cliff is not the imminent catastrophe it is being painted as, while New York Democrat Charles Schumer suggested that with Congress hopelessly deadlocked before November’s election Bernanke should tee up another round of significant stimulus by buying Treasuries or mortgage-backed securities. “Get to work Mr. Chairman,” Schumer said.

There should be little surprise that Bernanke remains noncommittal. The Fed extended its Operation Twist program last month, in a bid to buy more time for the economy to show whether it is driving through a rough patch or running out of gas. If it’s the latter, Bernanke has made clear that the Fed stands ready to launch additional asset purchases, though he has kept mum on the timing and composition of a potential third round of quantitative easing, or QE3.

Stocks sold off in the early portion of Bernanke’s testimony, but then picked up speed to finish with comfortable gains. The Dow Jones industrial average was up 78 points to 12,805, the S&P 500 added 10 points to 1,364, and the Nasdaq 13 points to 2,910. Gold prices were not showing much of an expectation for imminent Fed action, spending all day in the red. The SPDR Gold Trust ETF fell 0.5%.

Goldman Sachs, which recorded a decline in second-quarter profit but still topped estimates, was 0.3% higher at the bell. Coca-Cola, which touted strong growth at home and overseas, particularly in India, climbed 1.6%, while Johnson & Johnson added 0.8% after narrowly topping estimates despitepressure from currency headwinds. Mattel was the S&P 500′s best performer, jumping 9.7% after a surprisingly strong quarter.

After the bell, tech took center stage, with results from Intel and Yahoo, which tapped Google’s Marissa Mayer as its latest CEO Monday. Wednesday morning brings quarterly numbers from the likes of Bank of America and Honeywell.

source: forbes.com

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Posted in: Ben Bernanke,The Fed