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U.S. stocks rallied Wednesday (July 19) after Federal Reserve Chairman Ben Bernanke reassured the market on inflation, raising hopes the central bank may stop raising interest rates, according to a CBS MarketWatch report.
“The general conclusion from his comments was that he was more dovish than he has been,” said Al Goldman, chief market strategist at AG Edwards, referring to Fed chief’s Bernanke’s prepared testimony to Congress. The term ‘dovish’ suggest Bernanke will be less aggressive about raising interest rates in the future.
Goldman pointed to the Fed chief’s remarks that labor units costs were being contained while measures of longer-term inflation expectations have edged lower. He added, however, that Bernanke’s testimony makes no reference to the latest consumer price report that showed core retail inflation picking up.
In prepared testimony to Congress, Bernanke said inflation risks remain and the central bank is concerned about rising prices. But he said the economy is likely to slow and this should ease inflation pressures.
The Fed chief also said the full impact of past rate hikes has yet to hit the economy. His testimony fits with the rough consensus of economists who have said Bernanke will try to preserve the Fed’s flexibility to either continue to raise rates or pause in August, depending on the central bank’s interpretation of the latest economic data.
The Federal Reserve has raised its key short-term interest rate 17 times in a row in a bid to slow economic growth and choke off inflation. Its federal funds rate stands at 5.25%.