By Neil Irwin and Howard SchneiderWashington Post Staff Writers Friday, November 30, 2007; 10:17 AM
U.S. stock markets jumped sharply on Friday morning, as investors bet that recent remarks by Federal Reserve Chairman Ben S. Bernanke indicate interest rates will be cut again when the Fed meets in two weeks.
The Dow Jones industrial average added 130 points in the first twenty minutes of trading, a gain of around one percent. The Nasdaq and S&P 500 had similar percentage gains.
Optimism that rates are headed lower offset tepid report on consumer spending and a drop in construction. The Commerce Department said Friday that consumer spending increased 0.2 percent in October compared to the month before, the slowest rate of increase since the summer. Construction spending, meanwhile, fell 0.8 percent as a national housing slump continued.
But the same report showed that inflation also remained under control, adding to the sense that the Fed is likely to cut rates at its December session out of concern that the risks of a stalling economy outweigh those of rising prices.
Bernanke said last night that the central bank would take into account recent deterioration in the financial markets as it decides whether to reduce rates. Hours earlier, the White House released its economic forecast that acknowledged housing would be a drain on the economy next year, but it said tightening credit conditions would not stall business expansion.