Transcripts

Federal Reserve Chairman Ben Bernanke Addresses Congress

PAUL KANGAS: Federal Reserve Chairman Ben Bernanke says the economic recovery is on track. In his first monetary report to Congress, Bernanke also signaled the Fed`s campaign to raise interest rates may not be over, that inflation remains a risk. Washington bureau chief Darren Gersh reports.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fed Chairman Ben Bernanke was upbeat on the economy and slightly hawkish on inflation. Growth is strong and businesses are running with relatively little slack, so Bernanke says the Fed is on the lookout for rising prices.

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: Output could overshoot its sustainable path, leading ultimately, in the absence of countervailing monetary policy action, to further upward pressure on inflation. In these circumstances, the FOMC judged that some further firming of monetary policy may be necessary, an assessment with which I concur.

GERSH: The Fed has raised interest rates 14 times in less than two years, but Bernanke says he does not have a target for the right interest rate. That he says, will depend on the economic data.

BERNANKE: Our strategy is not to pick a magic rate or to pick a magic long-term rate. Rather, we consider alternative paths of future policy rates and, under each alternative path, we try to make a forecast about where the economy is going to go. Based on those forecasts, we try to judge what path will give us the best outcome in terms of our mandated objectives.

GERSH: So where is the Fed headed? Bernanke presented a forecast that calls for 3.5 percent growth this year and about the same next year, with inflation pegged at around 2 percent. The risks to the forecast, rising energy prices could feed through, causing other prices to rise as well or housing prices could fall further than the moderate softening the Fed anticipates. Overall, analysts expect another rate hike when the Fed meets in late March.

BRIAN BETHUNE, U.S. ECONOMIST, GLOBAL INSIGHTS: In addition, we think that, because the first quarter is proving to be quite strong with growth near 5 percent or even higher than 5 percent, that we think the Federal Reserve will likely raise rates by one more time in the May-June time frame. That will take Fed funds up to a level of 5 percent.

GERSH: Markets seemed pleased with Bernanke`s performance, members of Congress a bit less so. They asked for advice on taxes and the budget. But Bernanke broke with his predecessor`s example and refused to tell them what he thought they should do. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.