Newspaper article The Christian Science Monitor

To Fed, Inflation Threat Looms Largest ; the Fed Chairman Raised Hopes Thursday for a Pause after the Next Interest-Rate Hike

Newspaper article The Christian Science Monitor

To Fed, Inflation Threat Looms Largest ; the Fed Chairman Raised Hopes Thursday for a Pause after the Next Interest-Rate Hike

Article excerpt

A volatile combination of rising energy prices and faltering home prices is making a difficult job even harder for the Federal Reserve and its new chairman, Ben Bernanke.

Should the Fed keep raising interest rates to prevent inflation - a phenomenon driven in part by the ripple effects of oil prices above $70 a barrel? Or is it time for a policy pause, as a cooling US housing market pulls the economy onto a slower, and noninflationary, track?

The future path of an economy that is humming along, but that may now be slowing, depends in part on the Fed finding the right answers.

The dilemma posed by such mixed economic conditions helps explain the recent murky signals coming from the officials who manage America's monetary policy - including Chairman Bernanke at a congressional hearing Thursday.

The recent scuttlebutt, based on the Fed's policy-meeting minutes released 10 days ago, was that the central bank appeared to be nearly finished with its string of interest-rate hikes. Bernanke put it a slightly different way. He said the Fed may soon opt to stay on the sidelines for a time, to let more data to come in. But he said energy costs might tilt the Fed's policymaking committee toward vigilance against the risk of inflation.

"The committee [in March] ... judged that some further policy firming may be needed," he said in prepared remarks. "The data arriving since the meeting have not materially changed that assessment of the risks. To support the continued healthy growth of the economy, continued vigilance against inflation is essential."

In response to questioning by members of Congress's joint economic committee, he was pointed on the issue of energy: "Higher oil prices do create problems for monetary policy," he said.

Higher fuel costs potentially could push the rate of overall inflation higher, but Bernanke also noted an opposing risk: that the burden of new costs at the gas pump will take money out of consumer wallets and slow economic growth. …

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