WASHINGTON (MNI) – The following is a transcript of comments by
Federal Reserve Chairman Ben Bernanke during the ongoing news
conference:

Question:

Mr. Chairman, you now expect that both head line and core inflation
would be close to your long-run objective in 2012 and ’13 while
unemployment remains high. Does that mean that you think the trade-off
between inflation and growth has got worse and furthermore, can I ask
has the unexpected rise in core inflation changed your understanding of
the output gap? Thank you.

Bernanke: To address the latter question first, that’s a
possibility. As you saw from the — but as you saw from the projections
we just put out, the committee — every member of the committee sees the
long run unemployment rate somewhere around 5 and a half percent,
basically. So that would suggest that the committee still believes that
the output gap is quite large.

With respect to core inflation, some of the effects, at least
there, are also temporary to name two examples, the supply chain
disruptions brought about by the Japanese disaster led to a very
significant increase in auto prices both new and used automobiles last
month. As these problems are resolved and they appear to be very much on
the way to being resolved, we would assume that auto prices would come
back down and things restored as competition increases and costs are
reduced.

That’s one example. Another would be the fact that energy prices
have passed through to a number of — despite the fact that core is
defined excluding energy, that’s only direct energy products, things
like airfare which are sensitive to the cost of jet fuel are also core
so you would imagine as the price of oil declines we would see a decline
also in the core measures of inflation.

So given that there is still a large output gap, given that
inflation expectations remain well anchored, given that some of the
temporary factors affecting inflation are likely to recede, I think it’s
reasonable to think that core inflation will fall back toward mandate
consistent levels. That being said I think it’s the case if you look at
the projections that we have marked up a little bit, the near term and
core projections.

** Market News International Washington Bureau: 202-371-2121 **

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