By Denny Gulino and Rica Shelton Caughman

Bernanke spent 46 minutes in the classroom, easing into his former
role of university professor with a brief overview of the Fed’s actions
in the crisis and since and then taking questions from the students who
appeared to be well briefed on the subject.

Bernanke acknowledged the skyrocketing prices of many commodities
and said that for fuel, higher oil prices could leak through to the
general economy. And, he said, if the pass-through of commodities price
hikes began to affect the general price level, the Fed would act to
counter their influence.

He also said that experience has shown that during a period of
economic slack, it’s hard for producers to pass price hikes on to the
consumer.

So far, he said, the various benchmarks the Fed watches show
inflation expectations remain “really quite low,” protecting against
both inflation and disinflation.

Bernanke repeated the Fed is committed to both of its congressional
mandates, stable prices and full employment.

On QE2, Bernanke said the Fed acted to create “a faster recovery,”
since unemployment has been slow to improve. It was after the first
round of quantitative ease, he said, that the economy initially began to
recover.

When the time comes, he said, the Fed has a lot of well-prepared
tools to tighten monetary policy, including raising interest on bank
reserves, demobilizing reserves through time deposits, using reverse
repurchase agreements to drain reserves and selling assets the Fed holds
— something he said automatically extinguishes reserves.

On fiscal policy, he said the United States has to better align
revenues and spending in the years ahead and that a nonpartisan Fed was
ready to worth with both Congress and the administration.

He said there are important demographic differences between the
U.S. and Japan, one of which is Japan is aging faster than the U.S.

On housing, he said it will take time to adjust to the wave of
foreclosures and other problems but that the population keeps growing
and the time will come when residential construction will have to meed
that need.

On financial regulatory reform, he repeated that the Dodd-Frank
legislation importantly has focused regulators on the financial system,
not just individual firms while making the system less fragile.

-more-

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

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