BEN BERNANKE, Federal Reserve chairman, said the US central bank would remain vigilant over inflation, as he declared in a historic first press conference that a strong dollar was in the best interests of the US and the global economy.
Mr Bernanke’s comments came after the Federal Open Market Committee (FOMC), which sets interest rates, confirmed that the US will complete its $600 billion (€406 billion) “QE2” programme of asset purchases in June as planned, and revised its outlook to reflect slower growth, higher inflation and lower joblessness in 2011.
Facing questions from reporters at the first ever regularly scheduled Fed press briefing, Mr Bernanke sought to explain and defend the FOMC’s monetary policy decisions amid criticism from the right that easy money is stoking inflation and from the left that it is not aggressive enough in tackling the high US unemployment rate.
On inflation, Mr Bernanke said the current increase driven by higher petrol prices was likely to be temporary but that “there was no substitute for action and we would have to respond” in the event of a spike in inflation expectations.
He also sought to reassure that the Fed was not deliberately keeping the value of the dollar low.
“The Fed believes that a strong and stable dollar is in America’s best interests and in the interests of the global economy,” he said.
US stocks rose to a new post-crisis high, while the dollar was close to a three-year low as he spoke.
By mid-afternoon in New York the SP 500 was up 0.3 per cent at 1,351.23, its highest level since June of 2008.
The dollar index was down 0.4 per cent, its lowest level since August 2008.
“Bernanke is very much staying to script,” Boris Schlossberg, director of research at online currency trader GFT Forex in New York, said last night.
“The longer-term implications of the first press conference are that the Fed will remain stationary for the time being while the rest of the G-10 with the exception of Japan is moving toward a more tightening bias.”
Mr Bernanke’s remarks came after Fed officials made significant revisions to their economic forecasts for 2011. US gross domestic product is now expected to grow at a pace of 3.1-3.3 per cent this year, compared with the earlier projection of 3.4-3.9 per cent. Headline inflation will be up 2.1-2.8 per cent in 2011, compared with the much lower earlier estimate of 1.3 to 1.7 per cent.
Excluding food and energy prices, inflation will be up 1.3-1.6 per cent compared with the 1-1.3 per cent predicted earlier this year by Fed officials. The unemployment rate will be lower than expected, at 8.4-8.7 per cent this year compared to 8.8 to 9 per cent in the earlier estimates.
The Fed statement did not make any major changes compared with the March meeting, signalling that the central bank is keen to head off any expectation that it will move to tighten policy soon. – (Copyright The Financial Times Limited 2011/Bloomberg)
