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The stock market spent much of the day down sharply, but managed to recover late in the afternoon, the Dow closing down only slightly. We'll talk about what's pushing the markets down this week in this segment and about the state of the U.S. economy. Today, Federal Reserve chairman Ben Bernanke said the U.S. economic growth will slow in the next few months. But he believes the economy remains resilient and should begin to rebound by next spring. Bernanke spoke to the Joint Economic Committee of Congress.
NPR's Jim Zarroli reports.
JIM ZARROLI: Bernanke came to Capitol Hill at a time when the economy is being plagued by what New York Senator Charles Schumer called the Four Horsemen of the Apocalypse: Lower housing prices, a dropping dollar, rising oil prices and a lack of confidence in the credit markets.
Schumer, who chairs the Senate Finance Committee, appealed to Bernanke to use his influence with the Bush administration to taking more activist hand in solving the problems.
Senator CHARLES SCHUMER (Democrat, New York): A laissez fair, hands-off attitude might be appropriate if we had one of these crises. But confronting all of these problems at once should be a call to action, because the danger we face is so much greater.
ZARROLI: At one point, Schumer pressed Bernanke to estimate the likelihood of a recession. Bernanke smiled, his hands folded beneath his chin, and refused to take the bait. He pointed out that economic growth was strong last quarter and there's no sign yet that the drop in housing prices is causing consumers to spend less. But he said the troubles created by the subprime mortgage crisis could well slow the economy in the months to come. Bernanke noted that mortgage foreclosures have gone up and he suggested that the housing crisis will get worst before it gets better.
Mr. BEN BERNANKE (Chairman, Federal Reserve Board): Indeed, on average, from now until the end of next year, nearly 450,000 subprime mortgages per quarter are scheduled to undergo their first interest rate rescind.
ZARROLI: A lot of those mortgage holders will face payment shock, Bernanke said, and they won't be able to refinance their loans easily because subprime lending standards have gotten so much tighter. And he said if foreclosures keep rising, whole communities could be hurt, because too many foreclosures in a neighborhood lower property values. Still, Bernanke said, it doesn't appear at this point that there will be a recession.
Mr. BERNANKE: We think that by spring early next year that, as these credit problems resolve and as we hope the housing market begins to find the bottom, that's the broader resiliency of the economy, which we are seeing in other areas outside of housing, will take control and will help the economy recover to a more reasonable growth pace.
ZARROLI: Bernanke also addressed the idea that China might abandon the weakening dollar by placing more of its assets in other currencies. That idea was floated by a Chinese government official yesterday, but Bernanke said he didn't take it seriously.
Mr. BERNANKE: I don't see any significant change in the broad holdings of dollars around the country - around the world. Dollars remain the dominant reserve asset and I expect that to continue to be the case.
ZARROLI: The moderate economic picture that Bernanke sought to paint suggested that the Fed is not necessarily going to cut interest rates for a third time this year.
But James Glassman, senior economist at JP Morgan Chase, noted that treasury rates have fallen in recent days and he said that's a sign many investors, at least, believe another cut is coming anyway.
Mr. JAMES GLASSMAN (Senior Economist, JP Morgan Chase): The market's not really listening because the market is watching what's unfolding and it senses a danger, and it senses that the Fed is going to have to move policy to a more accommodative place.
ZARROLI: Bernanke's measured words also seem to be at odds with what was happening in the stock market. For the second day in a row, the Dow Jones Industrial Average had triple-digit losses, although it later regained most of the ground it lost. But disappointing earnings news from technology giant Cisco Systems sent tech stocks down. And the NASDAQ composite index had one of its worst days in months.
Jim Zarroli, NPR News, New York.
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