Fed's Dilemma: Investors Want Growth and Stimulus




By Jeff Cox, CNBC.com Senior Writer

NEW YORK ( CNBC) -- Fed Chairman Ben Bernanke's remarks to Congress last week satisfied neither those who believe the economy can stand on its own nor those who want the central bank to continue playing a role in the markets.

Stocks gained enough Thursday to make the Bernanke appearance an even draw. But behind the trading, Wall Street seemed to want to have its economic recovery cake while it eats more monetary easing, too.

Bernanke delivered what historically had been known as his Humphrey Hawkins remarks to the Senate and indicated that the recent turn in data -- manufacturing, housing and employment to name three -- gave him confidence that the recovery, while uneven, was a bit better than he had anticipated.

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The market interpretation, then, was that the chairman would be advocating no more of the monetary easing that has helped boost risk asset prices. At one point Wednesday, the Dow had fallen more than 125 points before erasing more than half its losses by the close.

The speech interrupted a sharp 2012 rally in stocks, while also triggering an abrupt sell-off in gold and other inflation-sensitive commodities. More broadly, the moves provided indication that the financial markets are still highly sensitive to the Fed's maneuvering.

"The fact that this reaction was mostly negative points to a surprising fragility in the prices of risk assets," Julian Jessop, chief global economist at Capital Economics in London, said in a note.