Testifying before a Senate committee on the economy Ben Bernanke, the Federal Reserve chairman, said the weak US currency and the higher price of energy would increase headline inflation in the short term and had the potential to boost inflation in the longer run” – though only if inflation expectations became unmoored.”
He said the Fed had cut interest rates at its last policy meeting because it expected that household spending would grow more slowly” and economic uncertainty could lead business spending to decelerate as well.”
Coming just over one week after the Fed’s decision to cut interest rates the market will be especially keen to hear an explanation from the Chairman regarding that decision,” said Drew Matus, economist at Lehman Brothers. However, history suggests they could be disappointed.” Mr Matus said the Fed chief should reiterate that the Fed is on hold and will only cut rates further if the economy or financial markets deteriorate.”
At mid-morning the S&P 500 was down 0.3 per cent at 1,471.81 and the Nasdaq Composite was 0.9 per cent lower at 2724.72, while the the Dow Jones Industrial Average was down 0.3 per cent at 13,263.60.
Retailers were in the spotlight on Thursday as they reported same store sales for October. These are sales at stores open for at least a year.
Stocks slumped on Wednesday amid further writedowns in the financial sector. The S&P fell 2.9 per cent, the Dow lost 2.6 per cent and the Nasdaq closed 2.7 per cent lower.