Economics

Bernanke's Timely Balm

The Fed chairman's indication of a willingness to moderate his tough stand against inflation reassured investors and sent stocks soaring

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By Catherine L Yap-Yang

June 30, 2006 at 4:00 AM UTC

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After weeks of talking past each other, Ben Bernanke and the markets finally managed to click—if only for a day. On June 29, when the Federal Reserve raised interest rates by a quarter-point for the 17th time in a row, to 5.25%, the Dow shot up 217 points and bond markets picked up (see BusinessWeek.com, 6/29/06, “Stocks Rally After Fed Hikes Rates”).

The rate hike was widely expected, but investors were applauding the Fed statement that accompanied the move. Despite tough inflation-fighting speeches over the last month by Bernanke and other Fed members, the central bank's written comment emphasized that economic growth is “moderating” and the public's inflation expectations “remain contained.”