Commodities were in full selloff mode Friday, led by crude oil, which fell more than $6 per barrel. Gold was down more than $7 to $832.50 an ounce.

Speaking at the Federal Reserve's annual retreat, Chairman Bernanke said the inflation outlook is uncertain, but that the Fed will act as needed to ensure "medium term" price stability. "Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided," Bernanke said. "Its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment."

Bernanke added that the higher U.S. dollar will help moderate inflation for this year and the next, but that he expects growth to fall short this year.

"Our reading of this speech is that Bernanke is dovish and has no intention of raising rates in the near term. Inflation, in the Fed's view, is to be held in check by lower commodity prices and rising slack and the Fed is facing a challenging environment on the financial stability front," economists from RDQ Economics noted in a client note.

Moody's lowered the credit ratings on Fannie Mae and Freddie Mac on Friday, saying there is a growing likelihood the U.S. Treasury will need to directly support the companies. The ratings agency downgraded the preferred stock ratings of the government-sponsored entities to Baa3 from A1. Their subordinated debt ratings were affirmed, but the outlook was changed to negative from stable. "Given recent market movement, Moody's believes these firms currently have limited access to common and preferred equity capital at economically attractive terms," Moody's said in a press release.

U.S. mass layoff actions, involving 50 or more employees from a single firm, came in at a seasonally adjusted 1,512 reading in July, a slower pace of layoffs than the previous months 1,643 actions, the U.S. Bureau of Labor Statistics reported Friday. The total number of workers involved was 151,171 in July, below the previous month's 165,697, which was the highest number of layoff actions since 2003.

Appearing on CNBC Friday morning, billionaire investor Warren Buffet said the U.S. economy is in recession and will continue to be for some time. He said the economy may be even worse off five months from now, but that he's confident the U.S. will be in better shape five years from now. The chairman and chief executive of Berkshire Hathaway Inc. also said mortgage finance firms Fannie Mae and Freddie Mac are too big to fail, although that doesn't mean shareholder equity can't be wiped out.

The Canadian government announced Friday it posted a $1.7 billion budgetary surplus in June due to rising income tax revenues and shrinking debt charges, though it was still short of the $2.8 billion recorded in the same month of 2007. In its monthly fiscal monitor, the Department of Finance reported that budgetary revenue in June was up 2.4% year-over-year to almost $21.2 billion, while total expenses came in at $19.4 billion, 8.9% higher than in June of last year.

In a letter to securities regulators, Bank of Canada governor Mark Carney said he wants the derivatives industry to be regulated by principles, not "prescriptive rules." "Given the rapid pace of financial innovation and the increasing complexity of markets our regulatory framework should be based, to the greatest extent possible, on principles that do not require prescriptive rules for sound implementation," Carney wrote in a letter to the Expert Panel on Securities Regulation.

Statistics Canada reported Friday that Prairie farmers expect to produce 10.4 million tonnes of canola in 2008, up from the previous high of 9.4 million tonnes in 2007. In Ontario and Quebec, farmers expected a new high of 3.2 million tonnes of soybeans.

In overnight news, the UK economy stagnated in the second quarter of 2008 against expectations of a quarterly growth rate of 0.1%, according to preliminary estimates from the Office for National Statistics (ONS). The previous quarter had seen a growth rate of 0.3%.

The euro zone current account deficit rose to €8.2 billion in seasonally adjusted terms in August, up from the previous month's deficit level of €5.5 billion. July's figure was revised down from an initial deficit figure of €7.3 billion.

By Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Geoff Matthews, This email address is being protected from spam bots, you need Javascript enabled to view it Patrick McGee, This email address is being protected from spam bots, you need Javascript enabled to view it , Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , and Todd Wailoo, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, This email address is being protected from spam bots, you need Javascript enabled to view it

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