Stocks Fall as Bernanke Predicts Slow Recovery

Unenthusiastic reactions greet a 'glum' speech to the International Monetary Fund

Ben Bernanke said today that while employment numbers were "far from normal," the rate of economic growth should improve in the second half of 2012. But the Federal Reserve chairman offered no hint of further government stimulus during his speech to the International Monetary Fund this afternoon, according to Reuters. The financial markets in New York, which fell during his speech, closed down across the board. The biggest drop was at the Dow Jones Industrial Average, which fell 0.16 percent.

During the mostly dull speech, one bit of color livened up the proceedings right at the end: J.P. Morgan's Jamie Dimon challenged Bernanke over the federal government's financial regulation. From to the Wall Street Journal's Mark Gongloff:

Mr. Dimon took the opportunity to express his fear that too much bank regulation,  and too much capital-holding, will hurt banks so much that it slows down the recovery.

“I have a great fear that somebody will write a book that the things we did in the crisis will slow down the recovery,” Mr. Dimon sniffled.

 

He ran through a list of the ways markets have changed since the crisis, saying “most of the bad actors are gone,” that exotic derivatives are gone, lending standards are higher, banks have more liquidity and capital, and boards and regulators are tougher.

Hey, Mr. Dimon seemed to suggest, enough is enough. And now on top of it all there are higher capital requirements and 300 new rules coming, and maybe it will all be too much for banks to take. Nice economy you’ve got there, he seemed to say. Shame if anything happened to it.

Bernanke responded:

“That list you gave me made me feel pretty good for a while,” Mr. Bernanke replied. “It sounded like we’re getting a lot done.”

Everybody laughed at that, perhaps because they knew it wasn’t really true.

Mr. Bernanke said he “can’t pretend” that anybody knows what the right balance of regulation is going to be, but that they’re going to try to strike a balance that prevents future crises and keeps banks lending.

But in spite of that small dust-up, as Dow Jones News Service's Michael Derby pointed out, "no real news for the policy outlook" came from the speech. The Bernanke quote picked up by reports across the board is firmly middle-of-the-road: "Overall, the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers."

Bernanke did mention a rise in U.S. and worldwide oil consumption, and NBC's Chuck Todd suggested on Twitter that he "appear[ed] to call out OPEC for their lack of production increases." The Globe and Mail's Michael Babad spoke with chief economist Avery Shenfeld of CIBC World Markets, whose take on the speech was that it "comes down firmly on the side of maintaining very stimulative monetary policy for a long time to come." We'll keep you updated as more reactions come out.