Market Mood Improves After Bernanke Remarks

Stock and bond markets reacted positively to Federal Reserve Chairman Ben Bernanke's remarks on the economy Wednesday morning. Bernanke was on Capitol Hill delivering the Fed's twice yearly update on the economy and Fed policy before the House Financial Services Committee.

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RENEE MONTAGNE, HOST:

Ben Bernanke's latest comments are at the top of NPR's business news.

Stock and bond markets reacted positively to the Federal Reserve chairman's latest remarks on the economy this morning. Ben Bernanke is on Capitol Hill delivering the Fed's twice-yearly update on the economy and Fed policy before the House Financial Services Committee. NPR's John Ydstie joins us now to talk about it. And John, what was it that Bernanke said that impressed the market?

JOHN YDSTIE, BYLINE: Well, Renee, the chairman said as clearly as he could that there's no pre-set course for the end of the Fed's huge stimulus program, the program that involves buying $85 billion in bonds and mortgage backed securities each month.

You'll remember that last month markets tanked when the chairman said the Fed could begin winding down that stimulus program in September. He said then that it depended on economic conditions - unemployment falling and the level of inflation at the right place. But the markets didn't seem to hear that then. Today he repeated that even more clearly.

MONTAGNE: Well, what could be so positive that the Fed would actually begin winding down this stimulus in September, which is just a couple of months from now?

YDSTIE: Well, this morning Bernanke was very positive about the revival of the housing market and the job market, but he also resurrected concern about the federal government's budget cutting, the across the board sequester, and that it could slow growth more in the coming months. And in fact a number of private economists have revised their forecasts down to show less growth. That would suggest maybe the Fed could judge that the economy is not strong enough come September to begin winding down the stimulus.

Bernanke also mentioned that inflation is far below the Fed's two percent a year target, and very, very low inflation can also be a drag on the economy. That was another hint to investors that maybe the stimulus will continue a bit longer, and that helped lift the markets.

MONTAGNE: John, thanks very much.

YDSTIE: You're welcome, Renee.

MONTAGNE: NPR's John Ydstie.

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