WASHINGTON – Federal Reserve Chairman Ben Bernanke faced his first market crisis with a calm, matter-of-fact demeanor that won praise from lawmakers and economists alike.
Rather than the famously opaque language that predecessor Alan Greenspan sometimes employed, Bernanke answered lawmakers' questions with plain vanilla statements Wednesday that seemed to do the trick to calm investor anxiety.
Testifying the day after the market's 416-point plunge, Bernanke told the House Budget Committee that the Fed was monitoring market developments but had seen nothing that would cause it to change its positive outlook for the economy.
Discussing market operations, he said, "They seem to be working well, normally."
In what might have been a reference to Greenspan, Bernanke said at one point there did not appear to be just one cause for Tuesday's sell-off.
The possible causes put forward by analysts have ranged from a record drop in China's Shanghai index, a surprisingly weak manufacturing report in the United States and weekend comments by Greenspan that had raised the possibility of a U.S. recession by year's end.
"There didn't seem to be any single trigger of the market correction we saw yesterday," Bernanke told the House panel, speaking in a slow, deliberate voice with his hands folded in front of him at the witness table.
Bernanke let the lawmakers know he wouldn't be led into publicly contemplating what role Greenspan's remarks or any of the other developments had played in setting off the worst one-day point drop since Sept. 17, 2001, after the terrorist attacks.
"I don't think it would be useful for me to try to parse the movement into the components associated with different pieces of news or pieces of information," he said.
Bernanke began his testimony to a standing-room crowd and with close to two-dozen lawmakers eager to question him.
However, the crowd dwindled as most lawmakers seemed more intent on discussing the looming budget problems in the government's big benefit programs — Social Security, Medicare and Medicaid — than the market turmoil.
But investors on Wall Street liked what they heard. Bernanke's words had a calming effect with investors pushing the Dow Jones industrial average up by more than 50 points.
House Budget Committee Chairman John Spratt, D-S.C., said in an interview after the hearing that Bernanke had supported his credibility by being careful to keep his comments "in the bounds of what he knows."
Mark Zandi, chief economist at Moody's Economy.com, praised Bernanke for an "excellent job" that delivered the key messages that the markets were functioning well and the Fed's views on the economy had not changed.
That was key information, analysts said, because it let investors know the big stock sell-off had not exposed any problems at major banks or brokerage houses and the Fed did not expect the sudden loss of $632 billion in paper wealth to alter the performance of the economy in a major way.
Bernanke noted that the government had reported earlier Wednesday that the overall economy, as measured by the gross domestic product, grew by just 2.2 percent at an annual rate in the final three months of last year.
While that was a sharp revision from the initial estimate of 3.5 percent, Bernanke said it was in line with the Fed's expectations.
"There's a reasonable possibility that we'll see some strengthening of the economy sometime in the middle of the year," Bernanke said, voicing the hope that the severe slump in housing and an effort by businesses to work off unwanted inventories would be less of a drag in coming months.
"We expect moderate growth going forward," he said, sticking with the upbeat forecast he had delivered to Congress two weeks ago.
Nariman Behravesh, chief economist at Global Insight, said while there could be more market volatility in coming weeks, he believed the economy would accelerate slightly as the year moved forward.
"The markets needed to hear a voice of calm and Bernanke succeeded in that role," Behravesh said.
Bernanke's comments on the stock market occurred at a hearing during which he also delivered virtually identical warnings as he had in January about the need to deal with looming budget problems in the government's giant benefit programs of Social Security, Medicare and Medicaid.
At the White House Wednesday, press secretary Tony Snow said President Bush had called Treasury Secretary Henry Paulson to get a readout on the stock market plunge.
Asked what advice the president would give to investors, Snow said, "The president does not give advice to investors in the stock market."