Dow declined after announcement of federal reserve board chairman...

Dow declined after announcement of federal reserve board chairman...

Federal Reserve Board Chairman Ben Bernanke said Wednesday that the outlook for the U.S. economy is "unusually uncertain," and that the Fed is willing to do more if growth proves to be weaker than forecast.

"We remain prepared to take further policy actions as needed to foster a return" to full employment with low and stable inflation, Bernanke said in written testimony delivered before the Senate Banking Committee.
In his testimony, the Fed chairman did not go further and elaborate on what actions the central bank might take. This omission disappointed some in the markets and Wall Street economists.
The stock market sank as soon as the afternoon's earliest Bernanke headlines hit. 
n the question-and-answer session, when asked to elaborate on potential further actions, the Fed chairman said the central bank had begun a review of the specific policy steps it may take if the economy were to slow dramatically. "If the recovery seems to be faltering, then we at least need to review our options," he said. "We have not fully done that review."

Bernanke listed three possible steps: changing monetary-policy statements' "extended period" language; cutting the interest paid to banks for their excess reserves; and further action on the balance sheet. This might mean not letting maturing securities run off the balance sheet or buying more assets, he added.

Bernanke said it was too soon to say which option was the front-runner. "All [the options] have drawbacks and potential costs. We do still have options, but they are not going to be the conventional options, and so we need to look at them carefully."

But many analysts saw Bernanke as reluctant to ease again.

"In my opinion, this statement reads like a Fed chairman way more concerned about draining liquidity as opposed to providing further stimulus. I would argue the market, being unconvinced in the recovery, is taking this as a too-hawkish statement," said Dan Greenhaus, chief economic strategist at Miller Tabak.

The economic team at Goldman Sachs pointed out Bernanke's comment that no one can accuse the Fed of not having been aggressive in trying to support the economy.

Source..http://www.marketwatch.com/story/bernanke-to-address-fears-of-the-double-dip-dragon-2010-07-21?siteid=yhoof

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