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"Unusually Uncertain Economy" -Bernanke
Posted On Wednesday, July 21, 2010 at at 5:28 PM by Finance Fanatic
Fed Chairman Ben Bernanke graced us with his presence on Wednesday as Big Ben gave a formal economic update to the senate. Wall Street was not very pleased.
After opening the day in the green, just shortly after Bernanke's opening remarks, the Dow sold off quickly into the red over 140 points. It remained down under 100 for the remainder of the day.
So what caused the negative response. Well, quite a few things. First of all, investors are getting more and more impatient with the recovery. Here we are, well over a year into the so called "recovery" and we have seen just minor blips in the economy. Keep in mind, this is after enormous amounts of government spending as well as record setting Fed policies that are in place to help the consumer. With all of this, we have only seen a slight improvement and from how Bernanke sounded today, he does not see it getting much better anytime soon.
Bernanke said that the current economy is in a very "fragile state" and that plans are in motion by The Fed to take action if conditions worsened. He says that although we've seen in slight rebound in unemployment, now at 9.5%, he expects that rate to slow and remain above 9% for the rest of the year. Consumers did not like that.
In addition to that, he said that the housing market continues to be in a weakened state due to mass amounts of distressed and foreclosed inventory that is weighing on home values. Thus consumers will continue to be forced to tighten consumer spending, which will effect the overall economy. This is the devastating domino effect I discussed way back last year.
Bernanke said that inflation was not a current concern at the moment, which is pretty obvious, but he failed to address the issue of deflation, which would seem to be the more imminent beast at the moment. Despite many economists dismissing the idea of deflation, many Fed officials are quite worried about it. Also, when you look at fundamental data, deflation becomes a huge concern. It may have been a wise choice for Ben to dodge that subject.
At either rate, I expect this news to weight pretty heavily with investors. I expect overall momentum to remain down for the next week, which should provide a good short trading environment for the time being. I will be making some trades early tomorrow. Happy Trading.
Translation: "We know even less than usually" FED is so pathetic...
Ben should retire.
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