NEW YORK (AP) — Comments from Fed Chairman Ben Bernanke set off a stock market rally early Wednesday, but it wasn’t long before another Fed official helped cut it short.
In testimony before Congress, Bernanke said the central bank would be open to new economic stimulus measures, but only if the economy gets much worse. The remarks were far from a promise for more Fed action, but markets reacted immediately nonetheless. The Dow Jones industrial average jumped as many as 164 points, or 1.3 percent.
Most of those gains evaporated later in the day after Federal Reserve Bank of Dallas President Richard Fisher said in a speech that the Fed had already “pressed the limits of monetary policy.”
Then Scott added this comment:
I wonder what it feels like to be able to destroy several hundred billion dollars in wealth (worldwide) by just opening your mouth.
One of the commenters wrote:
Blaming Richard Fisher for “destroying wealth” sure is a funny way of looking at things. Markets bounce around all the time on all kinds of news, odds are very high that the market would have pulled back eventually whether he talked or not. It could be that some speculators tried to ride out the Bernanke statement bounce then sold at the top.
In my post yesterday, I quoted from the Bloomberg item on the “Bernanke rally,” noting that the yield on the 10-year Treasury had risen, along with the stock market, from 2.88 to 2.95. By the end of the day, the yield had fallen back to 2.88.
Was it just coincidence that the yield on the 10-year Treasury and the S&P 500 were moving in sync? I don’t think so. Nor do I think that the timing of the turning point yesterday was unrelated to Fisher’s comment. Last September, after Bernanke first signaled a second round of quantitative easing, the stock market did not really start to move strongly upward until James Bullard, President of the St. Louis Fed, and William Dudley, President of the New York Fed, publicly endorsed QE2. Unfortunately, Bullard, head of that bastion of Chicago-School Monetarism in St. Louis, seems to have switched sides.