NEW YORK (Reuters) - Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that a weak job market and low inflation would likely allow the central bank to keep interest rates at very low levels for a long time.
KEY POINTS: * Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that a weak job market and low inflation would likely allow the central bank to keep interest rates at very low levels for a long time. * “Notwithstanding the positive signs, the job market remains quite weak,” Bernanke said in prepared testimony to the U.S. House of Representatives Financial Services Committee. * Bernanke told lawmakers that he stood prepared to continue supporting the economy with extraordinary stimulus for some time, but also argued the Fed possesses a broad array of tools to remove such accommodation when the time is right.
NEW HOME SALES: Sales of newly built U.S. single-family homes unexpectedly fell to a record low in January, according to government data on Wednesday that hinted at potential trouble for the fragile housing market recovery.
KEY POINTS: * Sales of newly built U.S. single-family homes unexpectedly fell to a record low in January, according to government data on Wednesday that hinted at potential trouble for the fragile housing market recovery. * The Commerce Department said sales dropped 11.2 percent to a 309,000 unit annual rate, the lowest level since records started in January 1963, from an upwardly revised 348,000 in December. It was the third straight month that new home sales fell and the percentage decline in January was the largest in a year. * Analysts polled by Reuters had expected new home sales to increase to a 360,000 unit annual pace from December’s previously reported 342,000 units.
PETER BOOCKVAR, EQUITY STRATEGIST, MILLER TABAK + CO, NEW YORK:
“Bernanke reiterated what he said in the January statement. He does follow though that ‘at some point’ they need to begin to tighten monetary conditions. (He is) stating the obvious. On their MBS buying, the program is winding down but the FOMC will continue to evaluate its purchases in light of the evolving economic outlook and conditions in financial markets... Same wording as in Jan, no surprises.”
“The statement (from Bernanke) is reasonably predictable. The real focus with the chairman today will be on the questions and answers, regarding the discount rate hike... I think the initial fear that that was signaling a change in policy has been quickly quashed. So that’s good.
“New home sales were kind of disappointing. But we know there’s not much building going on. What’s more important to me is the existing home sales, because we’ve got to go through a tremendous amount of inventory before we start looking at building new. The excess is what’s already built, not what’s being started. So we really need to focus on existing, more than new.”
ADAM YORK, ECONOMIST, WELLS FARGO SECURITIES, CHARLOTTE, NORTH
“There is not anything good to say about this report as it came in much weaker than we as well as the market had expected. This is a new all-time low for the series and the cycle as well. We have made great progress with inventory, so that does not worry as much. But we are arguably below equilibrium for the new home sales market. It is, however, a very small part of that market, at roughly 5 percent. Overall, this report is more important from a home builder perspective than a housing market perspective. Some of this drop is likely attributable to the original expiration of the home buyer tax credit and now that we are in the extension territory is not spurring as much sales as many had hoped. Weather could have also played a role. We are not out of the woods in housing yet, and once the support from the homebuyer tax credits and Fed MBS purchases end, we may be in for a rough ride in housing.”
“Home prices continue the deterioration. Obviously it is a sector of the economy that is going to continue to be a drag. Those who are hopeful for a recovery or an improvement in home prices I think are going to be sorely disappointed as we move through the year. Bonds have moved up off the earlier lows.”
HOME SALES: “It’s not a big surprise. I just came back from Florida, and it was obvious that that banks weren’t cooperating and giving new loans out. There are people who are now desperate to get their money out of real estate investments because it doesn’t appear that the housing market will change for a year or two or even three years. There’s more inventory reaching the market and there’s more capitulation with prices.”
BERNANKE: “He’s going to talk about the fact that he’s worried about inflation. That he’s even going to mention it is a little concerning to investors, even though the real concern is about jobs and the economy, not inflation. I think his testimony will be more about the economy and jobs, both of which continue to look slow.”
JOHN CANALLY, INVESTMENT STRATEGIST/ECONOMIST, LPL FINANCIAL,
BERNANKE TESTIMONY: “He stuck to the playbook. The Fed is trying to back away from its liquidity measures and to reduce its balance sheet somewhat, but the Fed is going keep rates low for an extended period. By keeping that language, that’s what helping the markets from the new home sales number.”
NEW HOME SALES: “It looked kind of weak. I had hoped for a better bounce here with the extension of first-time home buyer credit. There’s not much good news here. It’s a disappointing report.”
JOE SALUZZI, CO-MANAGER OF TRADING, THEMIS TRADING, CHATHAM,
“It’s awful. This is with the home buyer tax credit. I don’t understand people who say the housing market is turning. This number tells you housing is dead still.”
TORSTEN SLOK, SENIOR U.S. ECONOMIST, DEUTSCHE BANK SECURITIES,
“New home sales were not as good as we had hoped. That continues to bump along the bottom of what we had expected this year. Nothing unusual going on, at least from that data front.
“The most surprising thing is that Bernanke is saying in his statement that they need to begin tightening at some point. This was always the case that they would have to begin raising rates. The fact that he now mentions it, we should put some weight on it in emphasizing that the date of the hiking has come closer. He still emphasized the extended period language so in that sense this is a turtle step in the direction of having less dovish language. This is not hawkish; it’s less dovish.”
JOHN DOYLE, FOREIGN EXCHANGE STRATEGIST, TEMPUS CONSULTING,
“Right now we are seeing the move on the data. The dollar jumped after new home sales unexpectedly fell at a record pace, a decline of 11 percent versus expectations of a gain. So the dollar is gaining on risk aversion.”
MARKET REACTION: STOCKS: U.S. stock indexes were weaker BONDS: U.S. Treasury debt prices held steady DOLLAR: U.S. dollar slipped against the euro