[/caption]For over six sessions, the stock market has been galloping over the hurdles set the day before, until today when the Federal Reserve Chairman, Ben Bernanke, predicted that economic growth will be slower and lower for the rest of the year, Forbes reports.
The previous Gross Domestic Product (GDP) forecast was for a 3.2 to 3.5 growth, but Bernanke revision is for a 3.0 to 3.2 growth for the rest of the year.
What was in the economic forecasts in the recent reports that caused the Feds revision?
The main culprit was the fact that investors were focusing on Europe’s problems, which pundits claim or implied will cause a flight and refuge in our dollar, as well as our continuing low unemployment numbers.
The logical economic thinking is: if the dollar is worth more, this results in the curtailment of our exports, because our goods will cost more for those who purchase our wares. This curtailment in turn adds to our woes; if the manufacturers are not selling enough goods, then it affects employment...and the vicious circle continues.
What Bernanke is implying is that there must be the that delicate balance, where the dollar cannot be too high against foreign currencies. This pertains especially to Europe because the people there are the ones who could afford to purchase our exports.
The Feds further elaborated that the situation abroad in Europe - specifically the solvency, or lack thereof - of Greece contributed to their change in outlook. Chairman Ben Bernanke feared that if Greece defaulted, this economic scenario would drain the European currency of much of its' value, and the effect it would have on our dollar as described above.
It must be noted that Greece’s financial health was not in need of life support as was predicted by some financial pundits.
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