Markets Down on Federal Reserve News

An address given via satellite from Cape Town, South Africa, by Federal Reserve Chief Ben Bernanke on Tuesday caused the U.S. stock market to fall in morning trading, reports The Associated Press.

In his address international monetary conference, the Fed Chairman said that the central bank has little reason to cut interest rates. Investors have been hoping that interest rates would be cut by the Fed. The address caused a minor but intense sell-off in morning trading on Wall Street.

Bernanke said that GDP growth was down in the first quarter due to significant declines in net exporting, inventory, and defense spending. But, he said that those same economically depressing forces "seem likely to be at least partially reversed in the near term," as reported by Forbes.

"The trade deficit has shown signs of stabilization. Take out the impact of oil prices, and you see that it has been improving since January 2006. As for defense spending, who knows? The war isn't over. As for inventories, there are signs of that bouncing back," David Wyss, Chief Economist at Standard & Poor's, opined.

"The adjustment in the housing sector is still ongoing, and the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected," Bernanke also stated, as reported by Reuters.

"It sounds like he is playing both sides, essentially telling us nothing is going to happen from the Fed for a long time," Robert Macintosh, chief economist, at Eaton Vance Management in Boston, added.

"There was nothing new there, which makes it seem that the Fed is going to stay on hold. This is basically a market that's consolidating," Peter Cardillo, chief market economist at Avalon Partners, told MarketWatch.

The Dow Jones Industrial Average had fallen by over 120 points midway through lunch hour on Tuesday.

"The good news is he did say this residential real-estate morass won't leach out into the main economy. The bad news is he's still beating the drum pretty hawkishly on inflation," Jack Ablin, chief investment officer at Harris Private Bank, told the AP.