Had the Market Forgotten About Bernanke?

Headlines are proclaiming that the stock market is down today due to Federal Reserve Chairman Ben Bernanke's sobering Congressional testimony on the sluggish recovery. Even though headlines claiming that the stocks are down for 'x' reason are usually oversimplified and always annoying, Bernanke's words likely had something to do with the market's downward move this afternoon. Yet, anyone who follows the Fed and watched his testimony might find the market's reaction surprising. Bernanke didn't actually say anything that the Fed hadn't expressed before. Had the market been ignoring Bernanke recently?

CNN Money reports that stocks were slightly lower earlier today, and continues:

But the selling picked up steam in the afternoon following the 2 p.m. ET release of Bernanke's prepared testimony for a Senate committee. The Fed chief told lawmakers that, despite ongoing signs of weakness in the economy, central bankers expect gradual recovery over the next few years, although the labor market healing will be slower than previously thought.

"He's basically saying the economy is getting worse, and that while it's still going to grow, it's not recovering at the pace they had hoped," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.

Major indices were down more than 1% as the market neared close. And indeed, Bernanke did say that the Fed economists have revised downward some of their projections recently. But we've known that since last week, when the Fed released precisely these new estimates in their June meeting minutes. Why is the market so shocked that Bernanke sees the economy as slower than he did earlier this year?

Unfortunately, Bernanke provided very little new information in his testimony. He avoided questions involving stimulus, saying that it wasn't the Fed's role to comment on fiscal policy. It was somewhat surprising, however, that Senators didn't push him on why the Fed isn't doing more about the high unemployment rate. Some economists have blamed the Fed for not doing enough to curb unemployment. Although Bernanke did say it was a problem, he did not offer any new policy action that the Fed plans to take to help create jobs.

Bernanke also said that he doesn't expect a double dip recession, which was the same view expressed by the June meeting minutes. But he told the Senators that, if the economy does deteriorate further, the Fed has been discussing some new policy actions that it could take to stabilize the market to prevent a double dip. He did not, however, elaborate on which ideas are the leading contenders for expanding monetary policy under such a scenario.