American expectations of rising prices worries Fed
U.S. Federal Reserve chairman Ben S. Bernanke said increasing evidence the public expects prices to rise is a “significant concern” for the central bank.
“Some indicators of longerterm inflation expectations have risen in recent months, which is a significant concern for the” Fed, Bernanke said yesterday in a speech at Harvard University in Cambridge, Mass. Policy makers “need to monitor that situation closely.”
Signs of rising prices compelled Bernanke and other Fed policy makers to signal in April they’ll pause after reducing the benchmark interest rate by 3.25 percentage points since September.
The Fed is trying to sustain economic growth and minimize harm from the collapse of the subprime mortgage market without impairing its credibility for curbing inflation.
Bernanke’s remarks focused on the differences between the U.S. economy now and in the 1970s. The combination of a housing slump and slow growth along with surging food and energy costs has prompted economists to resurrect the term “stagflation,” first used in the 1960s to describe a mix of slow growth and rising prices.
“Maintaining confidence in the Fed’s commitment to price stability remains a top priority,” Bernanke said. “We see little indication today of the beginnings of a 1970s-style wage-price spiral.”