–Fed Will Acieve Job Of Low Inflation and Preserve Confidence

By Yali N’Diaye

WASHINGTON (MNI) – While acknowledging higher gas and other prices,
Treasury Secretary Timothy Geithner Wednesday said they are not
translating into higher inflation expectations.

At a conference on “The Way Forward With Fund Investors” hosted by
the Investment Company Institute, Geithner also expressed confidence the
Federal Reserve will meet its inflation mandate.

“At the moment the increase in gas prices you’re seeing and other
types of prices,” he said, is putting pressure on American families.

“But it’s not translating into higher overall” inflation risk “or a
rise in inflation expectations,” he said during a discussion with ICI
President Paul Stevens.

Besides, the Fed will achieve its inflation mandate, he
said.

“The Fed’s job, and they will achieve this, as they have, Geithner
said, “is to make sure that they preserve confidence that inflation will
be low, prices stable overtime.”

“The Fed’s going to have to do its job on inflation, which it
will,” he continued.

Against this backdrop, the focus of the government policy should
remain on how to make the expansion sustainable, he said, noting that
while emerging economies are growing rapidly, the U.S. is faring better
than many European countries as well as Japan.

To that effect, the Congress and the executive branch “need to make
sure they put in place the framework that restores balance” to the U.S.
fiscal position in particular.

“Our fiscal position is unsustainable,” he repeated.

He added that looking beyond partisan disagreement, there is an
overall agreement on the need to bring the deficit and public debt to a
more sustainable trajectory.

Turning to China, Geithner said the U.S. is trying to “encourage
China to let its exchange rate move in response to market” more rapidly.

Asked about possible alternatives to the U.S. dollar as a reserve
currency as raised by China, Brazil or Russia, Geithner said, “I don’t
think there is any realistic prospect of really dramatic or substantial
change in the global monetary system in the next decade or two.”

“Over the longer term, as these economies get stronger, if they
really open up their financial systems, if their currencies are really
flexible, that they dismantle control of capital movements, if they
integrate more fully, then it’s possible over a longer period of time to
see more significant shift. But not until those changes happen.”

So “I don’t think that’s going to come very rapidly.”

The key, he said, is the U.S. capacity to earn the world’s
confidence that it is a good place to invest. “That requires,” he
continued, “that we work very hard” to bring back that confidence
through growth fundamentals, the integrity of the financial system and
resolving the fiscal problems of the country.

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

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