Bernanke Takes Middle Ground

Bernanke's modestly optimistic comments about economic growth were accompanied by comments about inflation which "has been somewhat better behaved of late," he said.

"Looking forward, core inflation seems likely to moderate gradually over the next year or so. Some of the factors that pushed up core inflation in the recent past -- in particular, energy prices and shelter costs -- appear likely to be more neutral in the coming year, and inflation expectations remain contained," Bernanke said. However, "the risks to the [inflation] forecast seem primarily to the upside."

Major stock averages were recently hovering near break even but fell in initial reaction to Bernanke's comments, which seemed to downplay hopes for a Fed rate cut anytime soon. In fact, the speech could be interpreted as "steady as she goes" approach from the Fed chairman, i.e. the Fed remains "data dependent" with a slight bias toward tightening.

Bernanke's comments followed this morning's report that durable goods orders fell 8.6% in October vs. the prior month, well below consensus estimates of a 5% decline and the largest drop in more than six years. Dragging down the headline number was a 21.7% decline in transportation. Excluding transportation, orders fell 1.7%.

Separately, the National Association of Realtors said 6.24 million existing homes were sold in October, the first uptick since February, vs. a revised figure of 6.21 million for September and a forecast of 6.14 million. Still, the inventory of unsold homes grew to 7.4 months vs. 7.3 in September and 4.9 months a year before. The NAR also said home prices fell 3.5% over the last 12 months.

Finally, the Conference Board said its consumer confidence index fell to 102.9 this month from 105.1 in October. Wall Street had expected the reading to rise to 106.4.