Globalization No Impact on Inflation

Manila Bulletin, March 5, 2007 | Go to article overview

Globalization No Impact on Inflation


Byline: JEANNINE AVERSA

WASHINGTON (AP) -- Globalization has not hobbled the Federal Reserve's ability to influence economic activity at home by lowering or raising interest rates, Fed Chairman Ben Bernanke said.

Yet, Bernanke said Friday, increasingly connected financial markets around the world has certainly complicated the Fed's ongoing job of analyzing financial conditions and weighing their implications for monetary policy.

Those thoughts were contained in a scholarly speech Bernanke delivered to an economic summit in California. Copies of his remarks were distributed in Washington.

"Globalization of financial markets has not materially reduced the ability of the Federal Reserve to influence financial conditions in the United States," as some have argued, Bernanke said.

However, "globalization has added a dimension of complexity to the analysis of financial conditions and their determinants which monetary policymakers must take into account," he told the summit held by the Stanford Institute for Economic Policy Research.

In his prepared remarks, Bernanke did not provide any fresh insights on Tuesday's worldwide stock market meltdown, when the Dow Jones industrials suffered a 416-point plunge.

The sell-off was stoked by investors' fears about the economic health of global powerhouses, the United States and China.

The Fed chief's calming comments one day later helped Wall Street to bounce back. Then stocks started sagging again, with the Dow down 120 points on Friday alone.

Bernanke, in his speech, also did not discuss the future course of interest rates in the United States.

The Fed had steadily boosted rates for two years to fend off inflation. With economic growth slowing and some signs that inflation is improving, the Fed has left rates alone since August.

Many economists think the Fed will leave rates where they are for much of this year. Wall Street investors predict the Fed's next move will be a rate cut _ perhaps later this year.

One of the Fed's main jobs is to make sure that inflation does not get out of hand. …

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