Investors Shred Bernanke's Outlook, Bet on Rate Cut

Federal Reserve Chairman Ben S. Bernanke failed to convince investors that there's no need for further interest-rate cuts soon.

Bernanke told lawmakers in Washington yesterday that officials already expect the economy to ``slow noticeably'' this quarter, and warned of ``upside risks'' to inflation. Futures traders focused on his growth comments, increasing the odds of a quarter-point cut in the benchmark rate on Dec. 11 to about 98 percent today, from 68 percent a week ago.

The speculation may complicate Fed decision making, raising the risk of a sell-off in stocks and bonds should officials keep the main rate at 4.5 percent. Bernanke and his colleagues may try to reinforce their message of a neutral stance on borrowing costs between now and their next meeting, economists said.

``Market participants don't think the Federal Reserve is facing reality,'' said Allen Sinai, president of Decision Economics Inc., a New York forecasting firm. ``We have a consumer that is facing a lot of headwinds. We have a business sector that is showing lower revenues, and we have a banking system that is showing a lot of cracks.''

Bernanke said in his remarks to the Joint Economic Committee of the U.S. Congress that he expects ``more reasonable'' growth by the American spring. He predicted the economy will pick up later in 2008 as the impact of the housing slump wanes.
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