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Fed Chairman Cites Inflation Threat

Jul 10, 2007 Market Outlook

Ben S. Bernanke, the chairman of the Federal Reserve, said today that Americans have less erratic expectations about inflation than they used to but are still likely to let short-term events shape their long-term perceptions about price increases.


Mr. Bernanke’s remarks reflected the Fed’s position that inflation remains a threat to the economy and suggest that an interest rate cut is not coming anytime soon.

“Although inflation expectations seem much better anchored today than they were a few decades ago, they appear to remain imperfectly anchored,” Mr. Bernanke said in a speech to an economics conference in Cambridge, Mass.

The notion that the public’s perception about future inflation helps determine price increases is an important one for the Fed and Mr. Bernanke. He and other Fed officials have said that to achieve a slower rate of inflation, Americans need to be relatively sure about the direction of prices in the future.

He repeated those assertions today. “Why do we care about the variability of inflation expectations?” he said. “The extent to which inflation expectations are anchored has first-order implications for the performance of inflation and of the economy more generally.”

Wall Street barely budged at Mr. Bernanke’s remarks. Stocks, which had been trading moderately lower for most of the day, remained down.

For the last year, the Fed has left its benchmark short-term interest rate unchanged even though many economists and investors had bet that slower economic growth would prompt it to cut rates by now. But late last month when it issued its most recent decision, the Fed signaled that a rate cut was still some time away.

In its statement accompanying the decision, the Fed said that while inflation had improved modestly, ”A sustained moderation in inflation pressures has yet to be convincingly demonstrated.”

By JEREMY W. PETERS

Official Link: http://www.nytimes.com/2007/07/11/business/10cnd-fed.html?_r=1&oref=slogin

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