Bernanke's Talk Proves Costly

OK. That's a lot of risks. But a don't-fret sentence was right behind, even though it feels like a knock-on-wood kind of don't-bet-against-the consumer cliche:

"To the upside, consumer spending -- which has proved quite resilient despite the housing downturn and increases in energy prices -- might continue to grow at a brisk pace, stimulating a more-rapid economic expansion than we currently anticipate."

The "upside" feels a bit empty with no explanation for how or why the consumer will unexpectedly spend more after a marked downturn in retail sales in January and February, as mortgage woes escalate and as inflation gains ground.

Bernanke did take pains later on in the statement to explain that core inflation may moderate as rental prices decline once home ownership becomes more attractive again. But he added that the timing of such stabilization is hard to predict.

Bernanke also balanced the risks to rising inflation from high labor costs and tight levels of resource utilization. He said inflation may not kick up if productivity remains high or if companies absorb high labor costs in their profit margins.

In the question-and-answer session, Bernanke had the chance to say he does not think the economy will slip into recession this year. But "we're very uncertain" about the extent and breadth of damage to come form the housing market and the subprime mess, the chairman said.

Perhaps nothing Bernanke could have said would have reassured markets Wednesday, given the other headwinds. Oil spiked to $68 per barrel in after-market trading Tuesday on rumors of escalating tension with Iran. Oil ended the day up 1.8% Wednesday, to close at $64.08 per barrel.

"The main scenario in the markets today is Iran," says Todd Leone, head of listed trading at Cowen & Co.

The Fed can't do anything about that.