English /// 06/10/08
WASHINGTON -- Despite a recent spike in the
nation's unemployment rate, the danger that the economy has fallen into a
"substantial downturn" appears to have waned, Federal Reserve
Chairman Ben Bernanke said Monday.
Addressing
a Fed conference in Chatham,
Mass., on Monday night, Bernanke
said a government report last week showing the unemployment rate rising from 5
percent in April to 5.5 percent in May (the biggest one-month jump in two
decades) was "unwelcome." However, the Fed chief said other forces
should "provide some offset to the headwinds that still face the
economy."
The
Fed's powerful doses of interest rate cuts, the government's $168 billion
stimulus package, further progress in the repair of problems in financial and
credit markets, a gradual ebbing of the drag from the deep housing slump and
still solid demand from abroad for US exports should help the economy over the
remainder of this year, he said.
Although
economic activity is "likely to be weak" during the current
April-to-June quarter, Bernanke said "the risk that the economy has
entered a substantial downturn appears to have diminished over the past month
or so."
Last
Friday fears were rekindled that the country could be headed for a deep
recession after the unemployment rate zoomed and oil prices registered their
biggest single-day leap.
However,
Bernanke said, "Recent incoming data, taken as a whole, have affected the
outlook for economic activity and employment only modestly."
Still,
soaring energy prices are a double-edged sword for the country. Oil prices
closed Monday at $134.35 a barrel, down from last week's high of $139.12 a
barrel. They risk putting a further damper on growth as well as spreading
inflation through the economy, Bernanke said.
"Inflation has remained high," largely reflecting
sharp increases in the prices of globally traded commodities, Bernanke said.
"The latest round of increases in energy prices has added to the upside
risks to inflation and inflation expectations," he said.
The
Fed is paying close attention to the extent to which consumers, investors and
businesses believe prices will rise in the future, he said. If consumers,
investors and businesses believe inflation will continue to go up, they will change
their behavior in ways that aggravate inflation, turning it into a
self-fulfilling prophecy.
The
Fed "will strongly resist an erosion of longer-term inflation
expectations, as an unanchoring of those expectations would be destabilizing
for growth as well as for inflation," Bernanke said.
Bernanke
spoke Monday evening to a conference on understanding inflation and the
implications for Fed policymakers in setting interest rates. The forum was
sponsored by the Federal Reserve Bank of Boston.
His comments on the economy's outlook were fairly brief and were part of a
larger, mostly academic speech.
Last
week, Bernanke sent his strongest signal yet that the Fed's rate-cutting
campaign was probably over for now because of growing concerns that soaring oil
and other commodity prices (along with a weakened dollar) are aggravating
inflation.
To
help brace the economy, the Fed dropped rates in late April to 2 percent, a
nearly four-year low, continuing a rate-cutting campaign that started last
September.
Many
economists believe the Fed will hold rates steady at its next meeting on June
24-25 and probably through much, if not all, of this year. However, some
believe inflation could flare up and force the Fed to begin boosting rates
later this year or next year.
Inflation
forecasting is important to Fed policymakers when determining the best course
on interest rates. Even with extensive research over the years, much remains to
be learned about both inflation forecasting and inflation control, Bernanke
said. And there are areas where additional research could prove helpful.
Policymakers
and analysts often have relied on information from commodity futures markets to
help shape inflation forecasts, Bernanke said. In recent years, though,
information from futures markets has "underpredicted commodity price
increases ... leading to corresponding underpredictions of overall
inflation," he said. The "poor recent record" on that front
raises the question of whether policymakers should continue to use this source
of information and, if so, how, Bernanke said.
Despite
the recent record, Bernanke said he didn't think it was reasonable to ignore
information about supply and demand culled by futures markets. However, it does
seem reasonable, he said, to treat such information as highly uncertain.
Working
to make economic data timelier and more accurate also would be useful to
policymakers trying to divine inflation's direction. Moreover, it would also be
helpful for policymakers to know more about how people's inflation expectations
are influenced by Fed interest rate actions, Fed communications and economic
developments such as oil price shocks.
"Much
evidence suggests that expectations have become better anchored than they were
a few decades ago, but that they nonetheless remain imperfectly anchored,"
Bernanke said.
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