Stocks stumbled early Friday after Federal Reserve Chairman Ben Bernanke offered no new steps to stimulate the U.S. economy.
Optimism had been building on Wall Street for some kind of announcement from Bernanke of additional steps to get the economy going again. Bernanke was speaking at a conference in Jackson Hole, Wyo.
Bernanke dashed those hopes. The Dow Jones industrial average was down about 78 points shortly before the speech started at 10 a.m. Eastern. The Dow slumped as many as 220 points minutes after Bernanke started speaking, but recovered much of its losses by the time Bernanke was about half an hour into his speech.
By midmorning the Dow was down just 100 points ? a relatively modest decline in the context of the market’s huge swings over the past two weeks. The Nasdaq composite index turned higher.
Underscoring how fragile the U.S. economic recovery is, early Friday the government lowered its already weak estimate for how fast the economy grew in the April-June period. That report was another factor pushing stocks lower.
The Commerce Department estimated that the U.S. economy grew at a meager annual rate of just 1 percent in the second quarter. That’s even worse than its previous estimate of 1.3 percent.
The data renewed concerns that the U.S. might be headed for another recession. Nine of the past 11 recessions since World War II have been preceded by a period of growth of 1 percent or less.
The Dow was off 99 points, or 0.9 percent, at 11,051.
The Standard & Poor’s 500 index fell 7 or 0.6 percent, to 1,152. The Nasdaq composite index rose 9, or 0.4 percent, to 2,430.
The Fed has already pledged to keep short-term interest rates low until mid-2013. Low rates make higher-risk bets such as stocks more attractive. At last year’s conference in Jackson Hole Bernanke signaled that the central bank would buy more government bonds to lower long-term interest rates. Stocks rose steadily during the period when the Fed bought up $600 billion of Treasurys.
The government lowered its estimate for economic growth in the April-June quarter because of fewer exports and weaker growth in business stockpiles. That means the economy expanded only 0.7 percent in the first six months of the year, its worst pace since the recession ended in June 2009.
The yield on the 10-year Treasury note fell to 2.20 percent from 2.24 percent late Thursday. Bond yields fall as their prices rise.
Demand for Treasurys has been strong in part because of instability in Europe. In the past year, a sovereign-debt crisis in Greece has weighed on continents’ economic power houses, Germany and France.
Germany has balked at proposals to bulk up bailout efforts for Greece, Portugal and Ireland. A group led by Finland is demanding collateral on the bailout loans to Greece. The move shows growing divisions between countries that use the euro. Greece can’t afford to set aside collateral for every nation participating in the bailout. Finland’s move could scuttle the plan.
Greek bonds have fallen to record lows this week on fears that the bailout will fall apart and the nation will default.