Federal Reserve Chairman Ben Bernanke and his staff increasingly look like master forecasters ... or lucky ducks. In other words, they look exactly the opposite of investors who recently got excited about technology stocks, which on Thursday sustained a second straight day of harsh declines.

Be they lucky or good, the Fed has the markets right where it wants 'em. And "I don't think they'll surrender that any time soon," says Drew Matus, senior economist at Lehman Brothers.

A storm of bullish economic data came out Thursday as Bernanke took the floor at a Senate Budget Committee hearing. The Fed chairman warned that avoiding fixing the budget to adjust for increasing Medicare and Social Security needs could be harmful to the economy. But he revealed little about the current state of the economy or monetary policy.

He didn't have to. Good news on the housing, labor and inflation fronts Thursday further pushed the notion of a U.S. recession well into the past. The Fed is on hold and data-dependent. The economy is fine, but inflation is under control -- just what Bernanke said would happen. And, the markets no longer expect anything but that status quo from the Fed.

"Bernanke is doing a good job, and his transition has been very smooth," says Mickey Levy, chief economist at Bank of America.

The fed funds futures market now prices in only one rate cut in the second half of 2007, down from expectations in early December for two rate cuts by the May 2007 meeting.

"The hard-landing scenario appears all but dead," says T.J. Marta, chief fixed-income strategist at RBC Capital Markets.

Signs of stability in housing keep appearing. Housing starts jumped 4.5% in the month of December following November's 6.4% increase, while permits jumped 5.5% after 10 consecutive declines. The Philadelphia Fed's manufacturing index for January rebounded to an 8.3 reading, much higher than the 2.0 reading most economists expected. Also, initial jobless claims fell another 8,000 to 290,000 for the week ended Jan. 13, the lowest level since February 2006.

The housing data are heaped atop strong exports and retail sales at the end of last year to put fourth-quarter GDP growth at or above 3% by most economists' estimates. Levy predicts fourth-quarter growth to come out between 3.25% and 3.5%, but says the economy will slow to 2% to 2.5% GDP growth in coming quarters.

"We'll be in the low twos, but still healthy," he says. "The adjustment processes are working efficiently, but there are still adjustments." He notes that the impact of the falling trade deficit, or rising exports, is likely to happen only once. The U.S. may sustain the higher rate of exports, but another jump is unlikely. He also says the rush of consumer spending of the fourth quarter is unlikely to be repeated.

But the price of oil continues to fall, which puts the risks of inflation and economic strain somewhat at bay. Crude oil futures closed down 3.4% to close at $50.48 per barrel, having traded below the psychologically important $50 per barrel level intraday.

"The longer oil prices stay here, the more the Fed is just comfortable being at home with rates at 5.25% ," says Levy.

So why did bonds rally and stocks fall Thursday? All logic would suggest bond yields would rise as rate cuts odds drop, and stocks would climb as the economy shows signs of strength.

Thank oil and technical factors for the 10-year Treasury note climbing 8/32 to yield 4.75%, says William Hornbarger, fixed-income analyst at A.G. Edwards in St. Louis. Falling oil prices remove inflation pressures and relieve the bond market of concerns about rate hikes, even as the economy grows, he says. Traders also report large pension managers buying in at the long end of the yield curve, he says, adding that many investors see yields over 4.75% on the 10-year as a good entry point.

As for stocks, concerns about technology and earnings season pulled the plug on the Nasdaq Composite Thursday. The tech-heavy index fell 1.5% to close at 2443.21. The Dow Jones Industrial Average fell 0.07% to close at 12,567.93, and the S&P 500 dipped 0.3% to close at 1426.37.

Apple's ( AAPL) weak guidance Wednesday provided the main catalyst for pessimism. Shares of Apple fell 6.2% while Lam Research ( LRCX) tumbled 14.6% after the chip-equipment maker gave a disappointing forecast.

IBM ( IBM) beat earnings estimates after the bell Thursday, but its shares were down 4.6% in recent after-hours trading.

Shares of other tech names that had enjoyed a strong rally thus far this year were similarly punished. Dell ( DELL), Intel ( INTC) and Cisco Systems ( CSCO) each declined 1.9% or more. The Philadelphia Semiconductor Index fell 3.8%.

"People have expected volatility from tech," says Randy Diamond, trader at Miller Tabak. He adds that the headwinds for the sector still exist. The economy is still filled with overflowing inventories, he says. And a warning like Lam's suggests there could be more to come.

Meanwhile, tech firms like Apple weren't the only ones to suffer despite posting better-than-expected results. Merrill Lynch ( MER), Harley-Davidson ( HOG) and Continental Airlines ( CAL) fell anywhere between 1.5% and 3.5%, victims of the "sell the earnings news" mentality that has (seemingly) suddenly descended on Wall Street.

Friday brings results from General Electric ( GE) and Citigroup ( C), as well as the reaction to IBM's results and the University of Michigan Consumer Sentiment Index.

If the past two days are any indication, the market can do without much more "good news" on earnings or the economy.
In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click here to send her an email.