WASHINGTON (MNI) The following is a transcript from the ongoing
news conference with Federal Reserve Chairman Ben Bernanke and his
comments on rising gasoline prices:
CHAIRMAN BERNANKE: So first of all, gasoline prices obviously have
risen quite significantly. And we of course are watching that carefully.
Higher gas prices are absolutely creating a great deal of financial
hardship for a lot of people.
And gas, of course, is a necessity. People need to drive to work.
So it’s obviously a bad development to see gas prices rise so much.
Higher gas prices, higher oil prices also make economic
developments less favorable. On the one hand obviously the higher gas
prices add to inflation. On the other hand, by draining purchasing power
from households, higher gas prices are also bad for the recovery. They
cause growth to decline as well. It’s a double wham my coming from
higher gasoline prices.
Our interpretation of the increase in gas prices is the economist
basic mantra of supply and demand. On the one hand we have a rapidly
growing global economy, emerging market economies are growing very
quickly. Their demand for commodities including oil is very, very
strong. Indeed, essentially all of the increase in the demand for oil in
the last couple of years, in the last decade has come from emerging
market economies. In the United States our demand for oil, our imports
have been actually going down over time.
The demand is coming from a growing economy where we have seen
about a 25 percent increase in emerging market output since before the
crisis. On the supply side, as everybody knows who watches television,
we have seen disruptions in the Middle East and North Africa, Libya and
other places that have constrained supply. That supply is not made up
and that has in turn driven up gas prices significantly.
This is an adverse development. It accounts in the short-term for
the increase, all of the increase in our inflation forecast at least in
the very near term.
There’s not much that the Federal Reserve can do about gas prices
per se. At least not without derailing growth entirely, which is
certainly not the right way to go.
After all, the Fed can’t create more oil. We don’t control the
growth rates of emerging market economies. What we can do is basically
try to keep higher gas prices from passing into other prices and wages
throughout the economy and creating a broader inflation which will be
much more difficult to extinguish.
Again our view is that most likely — of course we didn’t know for
sure but we will be watching carefully — is that gas prices will not
continue to rise at the recent pace. As they stabilize or even come down
if the situation stabilizes in the Middle East, that will provide relief
on the inflation front, but we have to watch it very carefully.
** Market News International Washington Bureau: (202) 371-2121 **
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