Federal Reserve Chairman Ben Bernanke Expresses Anxieties Over Inflation
Tuesday, November 28, 2006SUSIE GHARIB: An inflation warning today from the chairman of the Federal Reserve. Speaking in New York to the National Italian American Foundation, Ben Bernanke said the economy is in good shape, but he's concerned about the current level of core inflation. His comments dashed hopes on Wall Street that the Fed might cut rates early next year. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fed Chairman Ben Bernanke got a standing ovation from the audience today, but not from Wall Street. Stock investors were disappointed the Fed chairman did not signal the possibility of an interest rate cut in the near future. Twice in his prepared remarks, Bernanke repeated this warning about inflation.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: The level of core inflation remains uncomfortably high.
MILLER: That sparked concerns the next move by the Fed might actually be a rate hike.
JAMES AWAD, PORTFOLIO MANAGER, AWAD ASSET MANAGEMENT: He was implying that maybe you're going to get rate increases and certainly he said nothing to encourage those who were betting on rate cuts.
MILLER: But the news wasn't all bad. Bernanke gave an upbeat assessment of the overall economy, despite a slowdown in the housing and auto sectors.
BERNANKE: Over the next year or so, the economy appears likely to expand at a moderate rate, close to or modestly below the economy's long run sustainable pace.
MILLER: The Federal Reserve's open market committee will meet December 12, and nearly everyone agrees the central bank is likely to hold rates steady as it did the last three meetings. The bigger debate is which way the Fed will move next year. Even after Bernanke's speech today, the bond market is pricing in nearly 50 percent odds of a rate cut in the first quarter. But many economists think the next move will be a rate hike.
ROBERT BRUSCA, CHIEF ECONOMIST, FACT AND OPINION ECONOMICS: I think they might be on hold for another three months perhaps. I think we could see rates going up end of February, March, in that period of time, because I think by that time, the economy will have more clearly recovered.
MILLER: There were several other issues Bernanke did not address in his speech today. He did not mention recent weakness in the dollar or his planned trip to China next month with Treasury Secretary Henry Paulson.
This is Fed Chairman Ben Bernanke's last planned economic speech before the Fed's December meeting. As a result, experts say his next major economic assessment is likely to come in the statement accompanying the Fed's decision. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
