INSTANT VIEW: Bernanke says economic uncertainty has risen

NEW YORK (Reuters) - Federal Reserve Chairman Ben Bernanke said on Wednesday uncertainties surrounding the U.S. economic outlook have increased somewhat recently, and that future Fed decisions will depend on what happens to both inflation and economic growth.

KEY POINTS: - "To date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation," Bernanke said in testimony prepared for delivery to the congressional Joint Economic Committee. - "The near-term prospects for the housing market remain uncertain," he said, adding that developments in the subprime mortgage market had raised additional questions about the housing sector.

COMMENTARY:

GARY WOLFER, SENIOR PORTFOLIO MANAGER, UNIVEST WEALTH MANAGEMENT & TRUST, SOUDERTON, PENNSYLVANIA:

"The stock market is reacting negatively with hopes dashed of any near-term cuts. He does acknowledge the housing slowdown, with rising inventory flipping back into the market which could bleed into the economy.

But he feels the risk to inflation is still of paramount importance. Core (inflation) readings remain fairly high according to the Fed's 1 percent to 2 percent range.

The Fed has kept the (inflation) bias unchanged last week, but it will likely change to a balanced bias as early as May. The factors favor a decline in rates."

THOMAS HIGGINS, CHIEF ECONOMIST, PAYDEN AND RYGEL

INVESTMENT MANAGEMENT, LOS ANGELES, CALIFORNIA:

"There's nothing shocking in Bernanke's testimony. The bond market is responding more to the durable goods report this morning which, across the board, was a weak report. Bernanke is saying essentially what the Federal Reserve said in its policy statement last week, but in more detail. He mentions the sub-prime issue and the risks to growth in a little more detail. He mentioned the spillover from weakness in housing to employment. And then he talked about the weakness in business investment which we saw in today's durable goods orders report, which was supposed to be a bounceback from last month's weakness."

DON KOWALCHIK, A DEBT STRATEGIST AT A.G. EDWARDS & SONS IN ST. LOUIS:

"Fed Chairman Bernanke commented that business spending is slowing down more than expected and is now saying spending is not quite as strong as we thought it was. Maybe the bond market is saying that there is some flow through from housing to the business sector now and with that you are getting a selloff in the equity market, of which the bond market is the beneficiary."

TOM SOWANICK, CHIEF INVESTMENT OFFICER AT CLEARBROOK FINANCIAL LLC IN PRINCETON, NEW JERSEY:

"I am surprised that he is not more guarded about the potential risk to a broader slowdown from housing. That said, stocks are under further selling pressure because Bernanke's testimony does not suggest an early ease."

RICHARD GILHOOLY, FIXED-INCOME MARKET STRATEGIST AT BNP PARIBAS, NEW YORK:

"The initial reaction is as per the equity market response that he is not at all risking inflation credibility by tipping his hand any further to a possible rate cut. He is suggesting that the uncertainties have grown but that they have not reached any conclusions at this point and that inflation is still the predominant concern.

"It seems that he is still convinced as he was a month ago that the subprime issues are not spreading and that there is no near-term likelihood of a cut. As a result the equity markets and the asset markets have come under pressure and after a brief selloff in the two-year (Treasury) note back to almost unchanged we've rallied back to the low yields of the day reflecting a renewed safe-haven bid. And I think that you are going to see more of that."

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BANK OF NEW YORK:

"Bernanke is pointing to a stabilization in the housing market, and we have Paulson saying the same thing. That's supportive of the dollar to a certain extent. But the market very much wants to sell dollars right now, especially after the weak durables goods report. They wanted to wait until after Bernanke's testimony was out. We still need to have some clarification about the change in the Fed's statement, so the Q&A will be important."

OMER ESINER, A MARKET ANALYST AT RUESCH INTERNATIONAL IN WASHINGTON, D.C.:

"Bernanke's comments were a bit of a mixed bag. On one hand he said their primary concern remains the fight against the inflation, but on the other hand, he is expressing worries with the economic outlook. So in the end, he have something for the dollar bears and something for the dollar bulls."

ROBERT GIORDANO, EXECUTIVE VICE PRESIDENT/TREASURER, BANK LEUMI USA, NEW YORK:

"There was a feeling that he's still emphasizing inflation even though in the long-run that will help to support bids on the long end.

The implication is that the concern about inflation coupled with hopefully short-term concerns over housing adds to a steepening bias."

JONATHAN BASILE, ECONOMIST, CREDIT SUISSE, NEW YORK:

"Initially it looks like the Fed is a little more cautious on the economic outlook. This is more of an expansion of the FOMC statement. There's still some risks in here that are unresolved, particularly on the housing side and also in business investment.

"We find these declines in durable goods somewhat disturbing. Some of the weakness can be explained by housing but some of it can't. Businesses are not investing, the concern is that they may also not be hiring. If that's the case, the outlook for jobs and incomes outlook could also be somewhat imperiled."

JILL KING, VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER OF HORIZON CASH MANAGEMENT, IN CHICAGO:

"The Treasury market has rallied a little bit here, but just beyond where it was before the remarks."

"It's hard to say why. He is not really saying anything any differently than in the Fed statement last week; that the economy is likely to expand at a moderate pace ... and that he expects core inflation to moderate over time."

"The market rallying a bit here today is more a reflection of the durable goods number, if you look at the components of durables it was a fairly weak number."

PAUL NOLTE, DIRECTOR OF INVESTMENTS AT HINSDALE ASSOCIATES, HINSDALE, ILLINOIS:

"Bernanke brought back inflation concerns, and I think a lot of that may evolving around the oil prices, which have been stuck above the $55-a-barrel level. We are no looking at pump prices at $2.25-$2.70 in most of the country even before the summer driving season gets underway.

"So this kind of surprised the market a little bit. The comments from the Fed when they kept interest rates steady, they were more concerned about economic growth than about inflation, but today this brings back inflation concerns again."

RICH PARKER, HEAD OF TRADING AT STANFORD GROUP IN NEW YORK:

"Bernanke's knocking the market down. As soon as he started talking, we began slipping. He's saying a lot of different things, but the market is certainly falling. Maybe they can digest it for a minute and take it back up. What everyone is waiting for is whether he's going to temper a little what he said last week. He has to say inflation is still a concern."

MEG BROWNE, SENIOR CURRENCY STRATEGIST AT BROWN, BROTHERS HARRIMAN, NEW YORK :

"So far, I don't think he has said anything that was unexpected. They are sticking to growth forecasts. Saying inflation remains uncomfortably high is a little bit more hawkish but really he is saying what was in the statement. The market ran the dollar lower ahead of his testimony and it has not come off much from there. We have to look at the text and the questions but so far nothing shocking."

ANDREW BRENNER, CO-HEAD OF STRUCTURED PRODUCT GROUP, MAN FINANCIAL, NEW YORK:

"Bernanke is taking the tough line for now. Look for the curve to flatten."

MARKET REACTION: - BONDS: Little changed from higher levels before the speech's release - CURRENCIES: Dollar drops further against yen to session lows, off more than 1 percent. Holds largely steady against euro - STOCKS: Extended losses on the session - U.S. RATE FUTURES: Slip from session highs but remain up on the day.