On March 28, 2007, Ben Bernanke offered a don't-panic analysis of the US housing market. "The impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained," he said in a speech.
But if his words were designed to offer reassurance, they didn't have that effect. The Dow Jones Industrial Average fell more than 100 points as investors weighed Mr. Bernanke's views on housing and his assertion that the Fed had a close eye on inflation risks – a signal that the Fed wouldn't be bringing short-term interest rates downward soon.
Bernanke said that despite a wave of defaults in subprime loans, "mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency." In fact, the credit problems were not confined to subprime loans, and by later that year the Bernanke Fed was not only cutting interest rates but also scrambling on other fronts to avert domino-style collapses of financial firms.
