Economy Watch: Bernanke Whispers Sweet Nothings in Investors’ Ears

Bernanke managed to calm Wall Street for a while on Friday while not managing to be too specific. He certainly wasn't specific about anything along the lines of QE3, though also in typical Bernanke style, he didn't quite rule it out, either.

By Dees Stribling, Contributing Editor

In his central banker way, Ben Bernanke managed to calm Wall Street for a while on Friday while not managing to be too specific. He certainly wasn’t specific about anything along the lines of QE3, though also in typical Bernanke style, he didn’t quite rule it out, either. His policy message boiled down to “the Fed’s gotta do what the Fed’s gotta do.”

Bernanke also took Congress to task for its summertime quarrel on the debt ceiling. “The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses,” he said. Congress is apt to ignore such barbs.

He was even optimistic (in his way) about the beleaguered housing market, which remains an anchor preventing the forward motion of the economy. “Over the medium term, housing activity will stabilize and begin to grow again, if for no other reason than that ongoing population growth and household formation will ultimately demand it,” Bernanke said. “Good, proactive housing policies could help speed that process. Financial markets and institutions have already made considerable progress toward normalization, and I anticipate that the financial sector will continue to adapt to ongoing reforms while still performing its vital intermediation functions.”

U.S. GDP growth revised for second quarter, but still crummy

Also on Friday, but with considerably less fanfare than the pronouncements from Jackson Hole, the Bureau of Economic Analysis released its second revision of second-quarter U.S. GDP growth. According to the BEA, the economy grew at 1 percent quarter-over-quarter. That means the economy is wheezing along like a two-pack-a-day smoker, but still doing better than first quarter, which grew by a lousy 0.4 percent, according to the BEA’s final figures.

The increase in real GDP in the second quarter, such as it was, stemmed from positive contributions from nonresidential fixed investment, exports, personal consumption and federal spending. Negative contributions were made by state and local government spending and private inventory investment. Imports, which are a subtraction from GDP, increased.

Consumers are still skeptical about GDP or any other kind of economic growth, such as in their wallets. The University of Michigan reported on Friday that its consumer sentiment index for the end of August reflected the economy’s crummy funk, but nevertheless was up a little compared to mid-August. The end of August found the sentiment index at 55.7, compared with 54.9 in the middle of the month.

Wall Street up on speech, will be open on Monday

Wall Street headed down much of Friday, but after Ben Bernanke’s speech late in the day, the indexes headed upward. The Dow Jones Industrial Average ended up 134.72 points, or 1.21 percent. The S&P 500 gained 1.51 percent and the Nasdaq vaulted 2.49 percent, with investors apparently realizing that Steve Job’s resignation wasn’t the end of the world.

Investors might have been listening to Bernanke on Friday, but they were also watching the skies in anticipation of Hurricane Irene and the damage it was going to cause. New York City seems to have been spared a monumental disaster, however. The exchanges issued statements on Sunday saying that they were going to be open for business on Monday.

Still, even before the winds and rain had died down completely, prognosticators were busy trying to gauge the damage in dollar terms. According to Kinetic Analysis Corp., a company that specializes in forecasting the effects of disasters, the hurricane will cost insurers $2.6 billion, with total losses at about $7 billion. Insurers, who spent last week being nervous, will have dodged a bullet if the relatively low estimate turns out to be true.

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