Archives - Economics: Page 18
Author: paul carson (Mon Jul 24, 2006 2:42 am)
Title: Bernanke Hints at an End to Rising Interest Rates
Despite the recent acceleration in consumer prices, pushed higher largely by oil prices, the chairman of the Federal Reserve expressed optimism on Wednesday July 19 that the central bank’s heavy lifting to fend off inflation may be almost finished.
“The economy appears to be in a period of transition,” Ben S. Bernanke, the Fed chairman, said at a hearing of the Senate Banking Committee. The outlook, he said, is for somewhat slower economic growth, a slight increase in unemployment and a broad-based cooling of the nation’s housing market.
The comments by Mr. Bernanke, who got off to a somewhat rocky start with Wall Street earlier this year, helped fuel a rally in financial markets, which had already started the day up on strong earnings reports from I.B.M., banks and airlines.
The Standard & Poor’s 500-stock index climbed 1.9 percent and pushed its way back into positive territory for the year after falling 2.3 percent last week when hostilities flared in the Middle East. The Dow Jones industrial average was up 212.19 points and the Nasdaq composite rose 1.8 percent.
And even though the Labor Department reported Wednesday morning that consumer price increases in June slightly exceeded expectations, Treasury bonds recovered from their earlier losses and shot higher.
Mr. Bernanke left ample room for another rate increase when Fed policy makers meet on Aug. 8, but he suggested that the most recent jumps in consumer prices were largely old news and would gradually subside as the Fed’s previous rate increases rippled through the economy.
“The lags between policy actions and their effects imply that we must be forward-looking, basing our policy choices on the longer-term outlook,” Mr. Bernanke told lawmakers. “We must take account of the possible future effects of previous policy actions — that is, of policy effects still ‘in the pipeline.’ ’’
Mr. Bernanke offered no specific hints about whether the Fed would raise rates again at its next meeting, and many analysts predicted that at least one more increase was still likely.
Speaking carefully, and staying as close as possible to his prepared remarks, Mr. Bernanke displayed a new nimbleness in communicating — in contrast with earlier performances that seemed to confuse investors and rattle the markets.
In plainer language than that typically used by his predecessor, Alan Greenspan, Mr. Bernanke conveyed a clear message on Wednesday July 19 about the Fed’s thinking. But he avoided any explicit hints about the Fed’s next policy move and emphasized the need for toughness if inflation signs unexpectedly persist.
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grow and be kind
This is a good sign that Bernanke has decided to watch his mouth, and that the Fed will likely hold the discount rate steady sometime soon. We can only hope for continued good news from the Fed as the summer moves on.