Federal Reserve Chairman Ben Bernanke this week expressed concerns over core inflation and noted a slowing economy, cooling housing market, and lower consumer spending, leading investors to expect another interest rate hike.
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Today, for the first time since March, the Dow Jones Industrial Average dipped below 11,000 points. The last month has been especially rough, from a 52-week high of 11,709 on May 10th, close to an all-time high, to today's close at 11,002.
The big sell-offs yesterday and today followed comments from Ben Bernanke, now in his fifth month as chairman of the Federal Reserve.
The Fed has been raising interest rates steadily for the last two years, and there had been some hints that those hikes could be over. But yesterday, Bernanke's tough talk about inflation got everyone's attention.
BEN BERNANKE, Federal Reserve Chairman:
Consumer price inflation has been elevated so far this year, due in large part to increases in energy prices. Core inflation readings — that is, measures excluding the prices of food and energy — have also been higher in recent months.
While monthly inflation data are volatile, core inflation measured over the past three to six months has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth.
For example, at annual rates, core inflation, as measured by the Consumer Price Index, excluding food and energy prices, was 3.2 percent over the past three months and 2.8 percent over the past six months. For core inflation based on the price index for personal consumption expenditures, the corresponding three-month and six-month figures are 3.0 percent and 2.3 percent. These are unwelcome developments.
In his speech yesterday, Chairman Bernanke also noted signs of a slowing economy, including a cooling housing market and lower consumer spending.