Federal Reserve Chairman Ben Bernanke gave the markets a Valentine's Day gift with his upbeat tone on the economy and inflation at his semiannual report to the Senate Banking Committee. "So far, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing of core inflation," he said. The Fed Chairman also reiterated the Federal Reserve's vigilance regarding inflation and that it would take action if required. He said that housing is a potential risk to the economic outlook, but noted there were tentative signs of stabilization such as the flattening in home sales figures recently, and some strength in mortgage application activity.

In addition to the Fed Chairman's comments, the economic data provided for additional market gains. Retail sales, for example, were slightly weaker than expected, initial claims were reported to be higher than the median, industrial production declined unexpectedly, capacity utilization backed off from inflationary levels, and the Philly Fed Survey reported deterioration to 0.6 in February compared with 8.3 in January and expectations of 5.0. Several components were weaker. In addition, the six-month outlook deteriorated for nearly all the categories.

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