Bernanke Defends Policy of Low Rates
By SUDEEP REDDY
August 23, 2008; Page A3
JACKSON HOLE, Wyo. -- Federal Reserve Chairman Ben Bernanke defended the central bank's decision to keep interest rates low even as consumer prices rise sharply, saying a weaker economy is likely to bring inflation under control in the medium term.
Mr. Bernanke's comments, at the Kansas City Fed's annual symposium at Grand Teton National Park, suggested the Fed is likely to keep its target for its benchmark interest rate at 2% in coming months.
The Fed chief said the "financial storm" that started last year "has not yet subsided." Financial turmoil and inflation triggered by higher commodity prices have resulted in "one of the most challenging economic and policy environments in memory," he said.
Some Fed officials have called for raising rates before long to address worries about inflation. Consumer prices rose 5.6% in July from a year earlier, a 17-year high. However, most officials believe a weak economy will lessen the inflation threat, and they want to keep rates lower for now to offset tightening credit conditions.
Mr. Bernanke on Friday said the Fed's strategy for keeping its rate target "relatively low" is based on the expectation that prices for oil and other commodities "would ultimately stabilize," in part due to slowing global growth. He said economic weakness would help bring inflation under control "in the medium run," indicating the Fed is looking beyond the recent price surges.
While Mr. Bernanke called the inflation outlook "highly uncertain," he said he's encouraged by the recent price decline in oil and "increased stability of the dollar."
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