Print

Email story

Comment

Letter to the editor

Stocks finish higher on Bush, Fed comments

The central bank will "act as needed" in the credit crisis.

By Times wires
Published September 1, 2007

NEW YORK - Wall Street closed out another erratic week with a big gain Friday after investors took comments from President Bush and Federal Reserve Chairman Ben Bernanke as reassuring signs that Wall Street won't be left to deal with problems in the mortgage and credit markets on its own.

Investors balked early in Friday's session when comments from Bernanke didn't indicate a cut in the benchmark federal funds rate was imminent. However, they moved past some of their initial disappointment and appeared to concentrate on comments that the Fed would step in if needed.

Bernanke, speaking at the Fed's annual conference in Jackson Hole, Wyo., said the central bank will "act as needed" to prevent the credit crisis from hurting the national economy.

The major indexes fluctuated, but by midday extended their gains after President Bush spoke about details of a plan to help borrowers facing trouble paying their mortgages.

"You've got all the speeches working for the market here," said Michael Church, portfolio manager at Church Capital Management in Philadelphia. "What we've seen in the last few weeks is that Ben Bernanke and the Federal Reserve are paying attention to what's going on. They will help correct the credit markets. For now, we're in a trading range and we have to sort through this mess."

As the trading week ended, the Dow rose 119.01, or 0.90 percent, to 13,357.74 on Friday.

Broader stock indicators also rose. The Standard & Poor's 500 index rose 16.35, or 1.12 percent, to 1,473.99, and the Nasdaq composite index rose 31.06, or 1.21 percent, to 2,596.36.

Bernanke suggested the Fed's next move will be driven by economic considerations, not only in response to troubles of investors and lenders.

"It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions," Bernanke said. "But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy."

Still, many believe the odds are growing that the Fed will cut its most important interest rate, now at 5.25 percent, by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting. The Fed hasn't lowered this rate in four years.

The fear is that if credit continues to become harder for people and businesses to get, spending and investment will be crimped. That could hurt overall economic growth. In a worst-case scenario, the country could slide into a recession.

Bush, however, predicted the economy would get through the financial crisis and urged patience.

"The markets are in a period of transition as participants reassess and reprice risk," he said. "This process has been unfolding for some time, and it's going to take more time to fully play out. As it does, America's overall economy will remain strong enough to weather any turbulence."

Key points
Highlights of Federal Reserve Chairman Ben Bernanke's speech:
Financial storm: Bernanke vowed to do all that is necessary to protect the national economy from the ill effects of a global credit crunch.
Tough love: Bernanke suggested the Fed's next move will be driven by economic considerations, not only in response to troubles of investors and lenders.
Limited role: While President Bush announced steps to help homeowners struggling to make their mortgage payments, Bernanke made it clear that he has no interest in bailing out lenders.

[Last modified August 31, 2007, 23:03:40]