Bernanke Excerpt:Equally Uncmfortable with 1% Or 3% Inflation

View Comments

WASHINGTON (MNI) – The following is an excerpt from Federal Reserve
Chairman Ben Bernanke’s semi-annual hearing Q&A session Wednesday for
the House Financial Services Committee:

BERNANKE: Well there is certainly a theoretical limit which is the
fact that the Federal Reserve can only buy treasuries and agencies, and
moreover quantitative easing typically involves buying longer term
treasuries and agencies as opposed to bills for example. So there are
finite amounts of that available, and moreover, beyond a certain point
if the Federal Reserve owned too much it would greatly hurt market
functioning and have the effect of reducing the efficacy of the policy.
So I wouldn’t say we are at that point yet, but ultimately there would
be some limit to how much we could do. We still have some capacity at
this point.

[On Inflation]

If for whatever reason, and we have seen for example in the last
few years oil shocks which have driven inflation up to 3% or higher.
Thats not a good situation, and its our objective, in that case to try
to move inflation gradually down to 2%. So if you are asking if we would
target 3% the answer is no.

[When asked if he is more comfortable with 1% or 3% inflation]

I think both of those are concerns because 3% of course means we
are moving towards a more inflationary situation, but 1% is closer to
the deflation range which is also not healthy for the economy.

I recognize that some people would advocate that we set an
inflation target at, say 4% and to maintain that for a number of years.
I don’t think that first, we could do that without losing control of the
inflation process. Secondly I am very skeptical that it would increase
confidence among businesses and households and increase economic
activity. I think it would create alot of problems in financial markets
as well. I don’t that it is a strategy that has alot of support on the
Federal Open Market Committee. We have maintained inflation near 2% for
a long time, and there is alot of confidence in financial markets that
the fed will keep inflation close to 2%.

The issue is that we currently have very well anchored inflation
expectations. People are strongly accustomed to 2% inflation. If we were
to say four, first there would be the issue of getting there. Could we
get there with some accuracy, and beyond that people would say, well why
not six, why not eight? So in the short run at least its not at all
clear that people would be confident that this new target of 4% would be
stable and sustainable. Instead they would wonder where inflation would
be in the near term.

** MNI Washington Bureau: (202) 371-2121 **



All|Economic Data

Market News International


© Copyright 2015 ForexLive™  |  Advertise With Us  |  Login To Comment  |  Sitemap

HIGH RISK WARNING: Foreign exchange trading carries a high level of risk that may not be suitable for all investors. Leverage creates additional risk and loss exposure. Before you decide to trade foreign exchange, carefully consider your investment objectives, experience level, and risk tolerance. You could lose some or all of your initial investment; do not invest money that you cannot afford to lose. Educate yourself on the risks associated with foreign exchange trading, and seek advice from an independent financial or tax advisor if you have any questions.

ADVISORY WARNING: FOREXLIVE™ provides references and links to selected blogs and other sources of economic and market information as an educational service to its clients and prospects and does not endorse the opinions or recommendations of the blogs or other sources of information. Clients and prospects are advised to carefully consider the opinions and analysis offered in the blogs or other information sources in the context of the client or prospect's individual analysis and decision making. None of the blogs or other sources of information is to be considered as constituting a track record. Past performance is no guarantee of future results and FOREXLIVE™ specifically advises clients and prospects to carefully review all claims and representations made by advisors, bloggers, money managers and system vendors before investing any funds or opening an account with any Forex dealer. Any news, opinions, research, data, or other information contained within this website is provided as general market commentary and does not constitute investment or trading advice. FOREXLIVE™ expressly disclaims any liability for any lost principal or profits without limitation which may arise directly or indirectly from the use of or reliance on such information. As with all such advisory services, past results are never a guarantee of future results.