Tags: Bernanke | Fed | Punch | Bowl

Bernanke: Fed Can Remove ‘Punch Bowl,’ Limit Inflation

Wednesday, 18 July 2012 05:06 PM

Federal Reserve Chairman Ben Bernanke assured lawmakers the Fed can limit inflation while providing record stimulus and won’t allow consumer prices to rise in return for faster economic growth.

“It will be a similar pattern to what we’ve seen in previous episodes where the Fed cut rates, provided support for the recovery, and when the recovery reached a point of takeoff where it could support itself on its own, then the Fed pulled back, took away the punch bowl,” Bernanke told the House Financial Services Committee in Washington.

Bernanke during two days of testimony to Congress said economic growth is slowing and inflation will probably remain at or below the Fed’s 2 percent objective after energy prices reversed their gains from earlier this year. The Fed won’t raise its target for price increases to 3 percent, he said.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

The gauge watched by the Fed, the personal-consumption- expenditures price index, climbed 1.5 percent for the 12 months through May and has averaged a 1.8 percent annual increase since the recession ended in June 2009.

“Inflation seems to be well in check,” Bernanke said.

The Fed said today the economy expanded at a “modest to moderate” pace in June and early July, as retail sales and manufacturing cooled in some regions. Manufacturing “continued to expand slowly in most districts,” employment “improved at a tepid pace” and “inflation was modest across most areas,” the central bank said, citing reports from its 12 district banks in its Beige Book survey.

‘Sharp Drop’

“The sharp drop in crude oil prices in the past few months has brought inflation down,” Bernanke said, repeating written remarks to a Senate panel Tuesday.

Fed officials forecast that inflation will range from 1.2 percent to 1.7 percent in 2012. Crude oil futures have declined more than 9 percent this year after posting a gain of as much as 11 percent in February.

Oil rose for a sixth day and touched the highest intraday level since May 30 as U.S. housing starts increased more than forecast and gasoline inventories fell. Crude for August delivery rose 0.7 percent to settle at $89.87 a barrel on the New York Mercantile Exchange.

The Beige Book survey said “price pressures were described as easing in New York, Philadelphia, Atlanta, and San Francisco as energy costs declined” while “wage pressures remained modest.”

“The U.S. economy has continued to recover, but economic activity appears to have decelerated somewhat during the first half of this year,” Bernanke said in his remarks. He said the Fed is “prepared to take further action as appropriate to promote a stronger economic recovery.”

More Action

The Standard & Poor’s 500 Index rose 0.7 percent to 1,372.78 as of 4:14 p.m. in New York amid better-than-estimated earnings. The yield on the 10-year Treasury note remained near a record low, declining two basis points, or 0.02 percentage point, to 1.49 percent.

New U.S. home construction rose in June to the highest level in almost four years, indicating the residential real estate market is strengthening even as other parts of the economy cool.

Housing starts rose 6.9 percent to a 760,000 annual pace after a revised 711,000 rate in May that was faster than initially estimated, the Commerce Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 745,000 rate.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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Wednesday, 18 July 2012 05:06 PM
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