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August 26, 2011 at 09:10 AM
Markets rose Friday after Federal Reserve Chairman Ben Bernanke said he was “optimistic” about the U.S. economy and signaled that the Fed had no plans for a third round of quantitative easing. The markets posted strong gains in early afternoon trading.
The Fed chairman’s speech Friday morning at an economic summit in Jackson Hole, Wyo., came less than an hour after the government reported softening in the U.S. gross domestic product in the second quarter.
“Although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” said Bernanke in his speech. “It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.”
Rather than discussing monetary policy, Bernanke instead took a historical look at why the recovery, now in its ninth quarter, has been so modest—and pointed to elected officials’ responsibility for adopting effective tax, trade, and regulatory policies and for fostering the development of a skilled workforce.
“As I have emphasized on previous occasions, without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage,” Bernanke said. “The increasing fiscal burden that will be associated with the aging of the population and the ongoing rise in the costs of health care make prompt and decisive action in this area all the more critical.”
Earlier this month, the Fed announced that it will hold short-term interest rates in a target range of 0% to 0.25% at least through mid-2013, and Bernanke said nothing on Friday to suggest a change in that policy.
Markets dipped immediately after Bernanke’s speech, but began an upward climb afterward. In early afternoon trading, the Dow Jones Industrial Average was approximately 160 points higher, up 1.46%, at 11,320. Nasdaq was up nearly 2.5 percent at 2,479.50. The yield on the 10-year U.S. Treasury bond rose to 2.22%, up from 2.13%, as demand for Treasuries held strong in the face of European instability. Gold was up 25.30, or 1.4%, to trade at $1,781 per ounce, and the VIX index of volatility was down 4.13 points to 35.63.
