The day the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) has been waiting for is finally here. With Fed Reserve Chairman Ben Bernanke speaking before Congress this morning, investors are finally getting some news on the economy that can inform their trades — and so far, the news has been good. The index is up 103 points as of 11:30 a.m. EDT, down from an initial spike of a 151-point gain.
Within the past few days, there have been a number of comments from top Federal Reserve officials that preempted the chairman’s testimony this morning. But they all said the same thing: It’s too early in the economic recovery to pull back on the current stimulus policy. Bernanke noted that the recent improvements in the labor market are a positive sign, but that there is still weakness that requires the support of the current policy. Acknowledging the low-interest-rate environment, Bernanke said that the Fed is looking for high interest rates later on, but while cutting back the current stimulus would cause a small rise in rates, it would also carry the risk of slowing or ending the current recovery.
During his testimony, Bernanke also put some of the onus on Congress, saying that “monetary policy does not have the capacity to fully offset an economic headwind of this magnitude.” With the steps taken by Congress, such as new tax increases, the sequestration, and other fiscal policy changes at the federal level, Bernanke expects a substantial drag on the economy through the rest of the year. Reiterating his statements from the most recent Federal Open Market Committee announcement, Bernanke said that the Fed would adjust the current QE policy as new data comes out showing economic improvements — especially in the labor market.
In housing news
Applications for new mortgages and refinancings fell for the second week in a row. Increasing mortgage interest rates are being blamed for the 9.8% fall. With the majority of activity falling under the refinance category, the 11.7% drop in new refinancing applications made a big impact. New mortgage activity for new homes fell by 3%.
Existing home sales were up in the month of April, however. Though the 0.6% increase doesn’t seem like much, it does show that there is still demand for homes. This is an important piece of data for the housing market, which has seen new housing starts decline significantly.