Bernanke suggests Fed may pause rate hikes

< Prev | 1 | 2

Market update

Rep. Carolyn Maloney, D-N.Y., and Sen. Paul Sarbanes, D-Md., raised concerns about interest rates moving much higher and suggested they would like to see the Fed end its rate raising campaign sooner, rather than later.

The economy has rebounded nicely from an end of year lull, Bernanke said.

Citing private forecasts, he said the economy grew at a rate of between 4 and 5 percent in the January-to-March quarter. That would mark a vast improvement from the anemic 1.7 percent growth rate registered in the final quarter of 2005. The government releases results of first-quarter growth surveys on Friday.

Story continues below ↓

advertisement | your ad here

Growth will probably moderate in the coming quarters, but still remain good, Bernanke said.

But there are risks to this outlook, including energy prices, he said.

Oil prices zoomed to a record high of $75.17 a barrel last week. They have retreated a bit and are now hovering below $72 a barrel — still more expensive than a year ago. Gasoline prices have been marching up and are around $3 a gallon in some areas.

“Rising energy prices pose risks to both economic activity and inflation,” Bernanke said.

If energy prices stabilize this year — even at a high level — their adverse impact on economic growth and inflation should ebb over time, Bernanke said. But with oil supplies lean and demand high, “periodic spikes in oil prices remain a possibility,” he added.

Thus far, energy prices haven’t significantly fed into the prices of many other goods and services. But Bernanke made clear that the Fed will continue to closely watch “core” inflation — which excludes food and energy prices — for signs about where inflation is heading. Bernanke said that the future direction of the housing market is also something the Fed will watch closely. Housing barometers suggest that “this sector will most likely experience a gradual cooling rather than a sharp slowdown,” he said. That would bode for moderate slowdown in overall economic activity.

In terms of the economy’s long-term health, Bernanke repeated his interest in seeing the United States’ swollen budget and trade deficits curbed.

Addressing another matter, Bernanke urged China to do more to revamp its currency policy.

The United States’ trade gap with China was $202 billion last year, the highest deficit ever recorded with any country. U.S. manufacturers say China is keeping the value of its currency artificially low, giving it an unfair trade advantage.

< Prev | 1 | 2