Bernanke Speech Causes US Stocks to Jump and Fall

In a speech to the Economic Club of Washington on Monday, Fed Chairman Ben Bernanke stated that it is too early to judge how long economic recovery will take from the current recession and that the Fed plans to continue holding down interest rates to extraordinarily low levels for the near future.  While Bernanke sounded an optimistic tone on the potential for economic growth next year, he remained cautious in his forecast, expecting a moderate recovery instead of a "vigorous snapback".  He also pointed out that there are still many obstacles to full fledged recovery stating that "significant headwinds remain, including tight credit conditions and a weak job market".  While Bernanke did not give an exact prediction for job growth in the future, recent Fed forecasts have shown that it could take 5 to 6 years for the job market to return to normal.

Stocks both jumped and then fell as investors responded to the speech on Monday.  Many were worried that positive news on the job front might result in the Fed raising rates in order to stave off inflation.  Bernanke's indication that he would keep rates near zero reassured some traders providing a modest gain in the market, however by late afternoon the Dow Jones had dropped 10 points and the S&P by 0.3%.  These drops can be attributed to a 1.7% decline in the financial sector, a testament to overall low confidence in the weak state of the US economy.