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Farrell: Bernanke's Surprise

Ben Bernanke went to Capitol Hill and surprised me and maybe some others when he said, "Economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period." Having raised the discount rate last week, he could have used the opportunity pass on being so blunt. Like the groundhog who sees his shadow (or doesn't see his shadow — I can never remember), the market has no visible obstacles from the Fed for some clear sailing if it wants.

While the Case-Shiller Home Index was encouraging, with the seventh consecutive sequential rise in home prices, we also had the lowest number of new-home sales since record-keeping started a half century ago. New-home sales dropped 11%, and the hope had been for a rise of 3 or 4%. The total number of new homes sold was at only a 309,000 annual rate. Weather played a part, but it's the third month in a row of a down number. Mortgage rates are low and there is still an $8,000 tax credit to be had so this strengthens the bearish view that housing is still stuck in a rut even if prices (as per Case-Shiller) are stabilizing.

The Conference Board's survey of consumer confidence plunged to a ten-month low of 46 in February from 56 the prior month. You could read into it that consumers are not completely on board with the idea of economic recovery. After being in economic recovery for about six months, confidence is still near a record low. But maybe that is not so surprising, with unemployment achingly high, wage increases very meager, record mortgage delinquencies, and the specter of higher taxes at hand.

Clearly Ben worries that we are a ways from shaking off the effects of the financial meltdown. In his testimony he said he would need to see a rebound in employment, housing, and bank lending before he would feel a sustained recovery is at hand. That is pretty clear as to what has to be obvious before rates come down.

And stocks rose on the day since they understand you don't fight the Fed. Take it a bit further and remember that Ben is a student of the Depression. In 1937, after some good years of recovery in both the economy and the stock market, the Fed raised rates far too early, as it turned out, (and taxes were raised as well) and the last and worst leg of the Great Depression ensued. Ben will be extra careful of doing that. And, with Greece about to be downgraded and the euro in distress, maybe the central bankers of the world are figuring a bit of inflation is the way out of this mess. Easy money and a healthy dose of quantitative easing. Don't bother fighting the Fed.

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Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC.