Equities sank after the most powerful central bank chief in the world came out guns blazing but fired blanks ahead of a speech by U.S. President Barack Obama.
Federal Reserve Chairman Ben Bernanke said the U.S. central bank would do anything in its power to bolster tepid economic and job growth. He also downplayed concerns about inflation.
"The Federal Reserve will do all it can to help restore high rates of growth and employment in a context of price stability," Bernanke told the Economic Club of Minnesota, though stopped short of detailing steps the Fed might take.
Policy makers “are prepared to employ these tools as appropriate to promote a stronger economic recovery in the context of price stability,” the Fed chief said.
Bernanke’s mere promise of discussing potential measures, without being more specific, at the Fed's next scheduled policy meeting on September 20-21 didn’t sit well with investors.
In late afternoon trading, the Dow Jones industrial average shed 1.03%, the Standard & Poor's 500 Index fell 1.11% and the Nasdaq Composite Index lost 0.99%.
"The Fed hasn't come out with more options or tools that the market wants or was expecting," Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York, told Reuters. "The market was disappointed because this wasn't a game changer."
It was unlikely though that Bernanke would steal the spotlight today.
Obama, who is scheduled to speak at 7pm EDT, is expected to present a US$300 billion plan of tax cuts and spending to revive the economy. The speech may prove to be a make or break moment in his presidency.
The President will propose cutting payroll taxes for small businesses as part of a plan to spur hiring, according to an administration memo obtained by Bloomberg News.
The tax cut will be included in a package Obama plans lay out in a speech to Congress tonight, along with assistance for the long-term unemployed, spending on roads and bridges and repairing schools, and aid to states to keep teachers and emergency workers on the job.
However, Bill Gross, founder of Pacific Investment Management Co, told Bloomberg that Obama’s plan was inadequate.
“I don’t think US$300 billion does it,” Gross said today before the speech. “I would like to see something bold.”
The mood was better across the pond, at least among equity investors, as the Stoxx Europe 600 Index ended the day with a 0.7% gain.
The euro, however, suffered a 1.4% drop against its U.S. counterpart after European Central Bank President Jean-Claude Trichet said “downside risks” to the euro-zone’s economy have increased, suggesting interest rates won’t rise any time soon.
The ECB kept interest rates steady at 1.5% today, as forecast by all 57 economists in a Bloomberg News survey.
The greenback climbed 1.06% against a basket of major currencies.