WASHINGTON (MNI) – The following is a transcript of comments by
Federal Reserve Chairman Ben Bernanke Friday during testimony before the
Senate Budget Committee. They were in in response to questions about
inflation and a possible rise in short-term interest rates due to the
Fed’s quantitative easing and worries about the deficit:
On the timing of the Fed’s exit strategy –
BERNANKE: “Now it’s always the case that when you are reversing
monetary policy in a period of growth that as a matter of judgement you
can be too early or too late. But that’s true for normal monetary policy
as well as for unusual monetary policy. So I’m not trying to claim
omniscience and of course it is always possible that we will be either a
little too slow or little too quick and we’ll do our very, very best to
move at the right time.
As far as inflation is concerned though, again the absolute
inflation rate is at essentially a post-war low and inflation
expectations look very stable …
Q: “Is there difference [sic] between interest rates on the federal
debt and inflation?
BERNANKE: The interest rates on the federal debt are also quite low
of course, and in the indexed bond market the break-even inflation rates
are about where you think they would want to be if people expect that
over the next five to ten years the Fed will keep inflation at about two
percent. Which is about where we think we ought to be aiming. We are
going to pay very close attention to the inflation situation and we take
that very, very seriously.”
Q: Why shouldn’t people be worried that eventually there could be a
tipping reached and a rather dramatic surge in interest rates could
occur?
BERNANKE: “Well on the monetary policy side, as I said, we are in a
situation similar to where we always are — which is we need to find the
right moment to begin tightening. You mention that the bond market is
expecting short-term rates to rise in the future, that would of course
be corresponding to the Fed tightening and reversing the easy money
policies. In terms of the fiscal side, there I absolutely agree with
you, I think that if Congress and the administration don’t find a
credible plan for controlling the long-term structural deficits, there
could be very serious problems in financial markets, in inflation.
That’s the history of many, many situations in the past. So I do
very much urge this committee to look for strong and credible actions to
control the federal debt. If that is done then I don’t think that
inflation will be a long term problem. What we are trying to do, I
think, in the short-term is to create an appropriate balance between the
risks of inflation and the risks of deflation — which are not yet
gone.”
** Market News International Washington Bureau: 202-371-2121 **
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