Wednesday, July 19, 2006
Note: just like his idiot predecessor, he'll eat his words soon enough........
Bernanke: Economy May Moderate Inflation
Wednesday July 19, 3:21 pm ET
By Jeannine Aversa, Associated Press Writer
Still, he didn't close the door to further interest rate increases.
Delivering his second economic report to Capitol Hill, Bernanke also stressed that these are difficult and uncertain times for Fed policy-makers, saying the climate of slowing growth and rising inflation puts the Fed in a tricky spot in terms of setting interest rates.
"There are risks in both directions, if I may say so," Bernanke said during questioning before the Senate Banking Committee. "Clearly we don't want to tighten too much to cause our economy to grow more slowly than its potential. We are very aware of that concern. We think about it. We look at it. We try to evaluate it," he told the panel.
"The risk in the other direction is that ... were we to stop tightening too soon and inflation were to get higher and more persistent, then we would be faced with a situation of having to address that later on with perhaps even more rate increases," he added.
Bernanke said those countervailing forces are something the Fed must weigh on a meeting-by-meeting basis.
"The recent rise in inflation is of concern," and possible increases in the prices of oil as well as other raw materials "remain a risk to the inflation outlook," he said.
On the other hand, a slowing economy should reduce inflation pressures going forward, he indicated. A slowing housing market and more cautious consumers -- whose spending accounts for a big chunk of economic activity -- are the main factors behind the moderation in overall economic growth, Bernanke said.
Bernanke also said that Fed policy-makers must remain mindful that the full impact of their previous interest rate increases have yet to make their way through the economy.
Asked about the possibility that the economy could see a substantial and potentially dangerous slowdown, Bernanke responded: "I don't see a recession as being very likely."
(NOTE: He's DEAD WRONG and can't possibly be THIS stupid!)
Wall Street rallied sharply higher as Bernanke's testimony, while somewhat hawkish, removed some of investors' chronic uncertainty over the Fed's policies.
The economy which grew in the first quarter at a 5.6 percent pace, the fastest spurt in 2 1/2 years, is expected to slow to a pace of around 3 percent or less in the second half of this year.
"The extent and timing of any additional firming that may be needed to address inflation risks will depend" on what incoming barometers say about the price climate and economic activity, Bernanke said.
"In the absence of significant unforeseen developments, the economy should continue to expand at a solid and sustainable pace and core inflation should decline from its recent level over the medium term," Bernanke told the Senate Banking Committee.
Bernanke's remarks in early June calling a rise in core inflation "unwelcome" had sent stock prices plunging as investors feared that the central bank would feel the need to raise interest rates several more times, increasing the dangers of a recession.
The Fed has raised interest rates 17 times since June 2004. Since the Fed's June meeting, energy prices have marched higher and oil prices jumped to a record closing high of $77.03 a barrel last Friday.
Sen. Jim Bunning, R-Ky., who has expressed opposition to Bernanke's elevation to Fed chairman, raised concerns that the Fed will push up rates too high and hurt the economy.
Bunning, saying he was disappointed in Bernanke's leadership, maintained that "inflation is not out of control. The Fed is chasing an inflation monster that is just not there." (NOTE: This guy Bunning is a complete idiot. What about ASSET INFLATION & The massive prices increases of EVERYTHING people use?)
The Fed's next meeting is Aug. 8. Some economists believe the Fed will leave rates alone then to assess how the economy is doing. Others think the Fed could bump up rates again in August but then take a break, or pause, after that.
Either way, most economists agree that a respite from two years of rate pain is in sight.
"I think we are getting very, very close to the end of the tightening cycle," said Mark Zandi, chief economist at Moody's Economy.com. "He is laying the ground work for a pause. If we don't have a pause at the August meeting, then it will be certainly be at the meeting after that" in September, Zandi said.
Before Bernanke spoke, the government reported consumer prices rose by just 0.2 percent in June, the smallest increase in four months and half of the 0.4 percent May rise. "Core" inflation, though, climbed by 0.3 percent and was rising at an annual rate of 3.6 percent over the past three months, well above the Fed's comfort level.
In its latest economic projections, the Fed said it expects the economy to grow between 3.25 to 3.50 percent this year, as measured from the fourth quarter of last year to the fourth quarter of this year. In its old forecast in February, the Fed said it had expected growth in the range of about 3.50 percent, a decent pace.
"Core" inflation, which excludes food and energy prices, should climb this year by around 2.25 percent to 2.50 percent. The Fed's new forecast puts core inflation higher this year than the approximately 2 percent estimate it gave in February.
However, the Fed expects inflation to moderate next year to around 2 percent to 2.25 percent. Economic growth next year could clock in at 3 percent to 3.25 percent, about the same or a tad less than the Fed's 2006 projection but still healthy.
Fed watchers had hoped that Bernanke, a respected economist and former economics professor with a reputation for speaking plainly, would put an end to the Delphic discourse that came out of the Fed under his predecessor, Alan Greenspan. However, Bernanke's communications with Wall Street and Main Street have been bumpy at times, particularly when he sent contradictory signals early on about where interest rates might be heading.