By Jennifer Yousfi
U.S. markets rallied as soothing comments from two of the most influential minds in finance combined to assuage investor fear and push indices higher.
The blue-chip Dow Jones Industrial Average Index gained 195.90 points (1.71%), to close at 11,626.11. The tech-laden Nasdaq Composite Index rose 34.33 points (1.44%), to reach 2,414.71. And the broader Standard & Poor's 500 Index increased 14.43 points (1.13%), to hit 1,292.15.
Speaking in Jackson Hole, Wyo., U.S. Federal Reserve Chairman Ben S. Bernanke said the effects of the ongoing domestic credit crisis "are becoming apparent in the form of softening economic activity and rising unemployment," The New York Times reported.
But Bernanke anticipates inflation to ease by year-end, stating he found the recent decline in oil prices and other commodities "encouraging."
Mirroring the Federal Open Market Committee's policy statement from Aug. 8, in which the FOMC voted to hold the Federal Funds rate steady at 2.0%, Bernanke said the outlook for inflation "remains highly uncertain," but that the Fed "will act as necessary" to achieve "medium-term price stability."
Bernanke also called for increased cooperation among regulators in order to prevent further bank failures before another bailout becomes necessary. Bernanke defended the Fed's involvement in JPMorgan Chase & Co.'s (JPM) purchase of distressed investment bank, The Bear Stearns Cos. Inc., saying, "those actions were necessary and justified under the circumstances that prevailed at that time."
Meanwhile, iconic investor Warren Buffett, chairman of Berkshire Hathaway Inc. (BRK.A, BRK.B), appeared in an interview on CNBC in conjunction with the nationwide release of the documentary I.O.U.S.A.
Buffett appears in the film that focuses on the mounting debt of the United States and the possible ramifications if the nation doesn't end its pattern of massive borrowing. During the interview, Buffett shared his views on the U.S. economy.
"You always find out who's been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach," said Buffett, Reuters reported.
He also said Bernanke doesn't have a "magic wand" to boost an economy facing the triple-threat of weak growth prospects, mounting inflation and deteriorating credit. "In my judgment it won't be any better five months from now," he said.
But while Buffett's outlook for the U.S. economy remains dim with no near-term recovery, he did say he felt U.S. stocks are broadly "more attractive" than the same time last year.
He also said that Berkshire Hathaway has reversed, what at one time, was a $21 billion bet against the dollar. [Please click here for a related story on Berkshire Hathaway in today's issue of Money Morning.]
News and Related Story Links:
- The New York Times:
Bernanke Urges Broader Oversight of Financial Firms
Fed begins to focus on preventing next crisis
- Money Morning:
Federal Reserve Holds Rates Steady at 2.00%, Says "Downside Risks" and Inflation Remain Concerns