Bernanke and the Stock Market

Federal Reserve Chairman Ben Bernanke testifies before Congress this week on the state of the economy. While much of his testimony will be a dry recitation of economic statistics and forecasts, Wall Street has criticized Bernanke for his negative outlook and is hoping he will put a positive spin on the nation’s economy. With the Dow Jones Industrial Average is trading near its 1997 level of 7100, traders are grasping at any hope for a market rally. It is possible the right comments from Bernanke can swing the sentiment of investors.

The question is why should Bernanke worry about the effect of his comments on the stock market? He has faced criticism for calling the economy “dismal” and the problems “daunting”, but no one disagrees his comments have not been accurate. The economic forecast for 2010 and beyond is for positive economic growth, decreasing unemployment, and price stability - which is all fair game for Bernanke to include in his testimony. But, there is no good reason Bernanke should in his testimony before Congress sugercoat just how bad the next six months to eighteen months will likely be for the U.S. economy. Wall Street will have to outlive the bad news.