NEW YORK — Wall Street retreated Thursday after Federal Reserve Chairman Ben Bernanke predicted a “sluggish” economy until later in the year and more mortgage-related losses at banks.
The Dow Jones industrial average fell 175 points.
Though the Fed chairman’s comments suggested the central bank is still open to further interest-rate reductions, the tone was, as expected, somber. Bernanke said the housing and credit crises have weighed on the economy and curbed hiring. If the job market deteriorates, consumer spending, which is crucial for economic growth, will keep dwindling.
The Labor Department said Thursday the number of workers filing unemployment claims fell 9,000 to 348,000 last week. But after the January jobs report that showed the first net jobs loss in more than four years, Wall Street remains worried that businesses are becoming cautious about hiring and that unemployment will compound the debt problems that have been slamming the markets and the greater economy.
After three strong days on Wall Street, investors found scant encouragement in Bernanke’s testimony and cashed in their gains.
“He was more bearish on the economy than he was before,” said Arthur Hogan, chief market analyst at Jefferies & Co.
After this week’s better-than- expected report on January retail sales, investors found Bernanke’s assessment of the economy particularly disheartening.
“To have the Fed come in and talk about how things could be getting worse, not better, kind of takes the wind out of their sails,” Hogan said.
The Dow fell 175.26, or 1.40 percent, to 12,376.98, after gaining 370 points total in the previous three sessions.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 18.35, or 1.34 percent, to 1,348.86, and the Nasdaq composite index fell 41.39, or 1.74 percent, to 2,332.54.
The dollar was mixed against other major currencies.
The weak dollar is, somewhat counterintuitively, helping to prop up the economy because U.S. goods are cheap for foreign buyers. The government reported Thursday that the nation’s trade deficit, which had ballooned to record levels for five straight years, narrowed in 2007. In December, the deficit dropped 6.9 percent to $58.8 billion, thanks largely to strong increases in U.S. exports.
High oil prices, however, are keeping the deficit from narrowing further. On Thursday, light, sweet crude oil rose $2.19 to $95.46 per barrel on the New York Mercantile Exchange.
Gold prices fell.
