Again, investors to scrutinize Bernanke's remarks

Ben Bernanke , Fed chairman, will testify before a House panel Wednesday. BloombergNews
Ben Bernanke , Fed chairman, will testify before a House panel Wednesday. BloombergNews
Posted: July 18, 2013

WASHINGTON - Ben Bernanke's sway over financial markets has been on full display in recent weeks. When the Federal Reserve chairman speaks Wednesday to Congress, investors will once again parse each word for any subtle shift in the Fed's stance on interest rates.

Bernanke has sent financial markets plunging and surging the last two months, depending on whether he was seen as loosening or affirming the Fed's commitment to ultra-low interest rates. Low rates have fueled home sales, encouraged borrowing and spending, lifted stock prices, and helped support economic growth.

Since the financial crisis erupted in 2008, the Fed has kept its benchmark short-term interest rate near zero. And since late last year, it's been buying $85 billion a month in mortgage and long-term Treasury bonds to try to reduce long-term rates and induce people and businesses to borrow and spend.

The chairman's two days of testimony begin Wednesday before the House Financial Services Committee. Bernanke is expected to be pressed about the Fed's likely timetable for slowing its bond buying. His recent public remarks have baffled investors.

After the Fed's last meeting, June 18 and 19, Bernanke sketched a rough timetable for the Fed's bond purchases: He said that if the Fed's expectations for moderate economic growth and a gradually stronger job market prove accurate, it could start scaling back its bond buying later this year and end it around mid-2014. Bernanke said he thought the unemployment rate would then be about 7 percent. It's now 7.6 percent.

His words sent stocks plunging. The Dow Jones industrial average sank 560 points in two days. Investors feared Bernanke's comments meant the Fed was ready to let rates rise sooner and faster than they'd expected.

Since then, the chairman and other Fed officials have sought to calm investors. They've stressed that the Fed won't pull back on its stimulus unless the evidence was clear that the economy and the job market were improving as much as the Fed had forecast.

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