Transcripts

Inflation Continues To Draw Strength From The Sagging Dollar

PAUL KANGAS: Investment banks aren't the only things the Federal Reserve is interested in supporting these days. Today, Fed Chairman Ben Bernanke talked up the value of the U.S. dollar. Since the sagging greenback raises the price of oil and other imports, that's a major inflation concern. Darren Gersh reports.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the Washington battle of the buildings, the Treasury has long held the franchise on speaking out about the dollar. So markets took note when the Federal Reserve stepped out front today and Chairman Ben Bernanke said the dollar's decline has led to what he called an unwelcome rise in inflation. Speaking by satellite to a monetary conference in Spain, Bernanke explained the Fed's mandate of promoting maximum employment with minimum inflation put the dollar on his agenda.

BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations.

GERSH: Economist Fred Bergsten has argued for more than five years that the dollar needed to come down in order to bring the huge U.S. trade deficit under control. Bergsten now says Bernanke is right to try to head off another sharp drop in the dollar.

FRED BERGSTEN, DIR., PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS: In terms of U.S. international competitiveness, the dollar still needs to come off, probably another 5 to 10 percent. Now having said that, it has come down by 30 percent over the last six years; most of the dollar's correction has taken place. Probably all of its need correction has taken place against the euro, the Canadian dollar and most of the currencies of our trading partners.

GERSH: Since lower interest rates weaken investor interest in the dollar, analysts like Josh Bivens read Bernanke's speech as a signal further interest rate moves by the Fed are on hold.

JOSH BIVENS, ECONOMIST, ECONOMIC POLICY INSTITUTE: I definitely got the sense that it was a speech that was in large measure plowing ground to prepare people for don't expect big, aggressive rate cuts anytime soon.

GERSH: Although the Fed reserves the right to change with the economic winds, for now Bernanke said interest rates and monetary policy are well- positioned to keep the economy growing with moderate inflation. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.