WASHINGTON – “Our policy is still oriented towards control of inflation, which we consider … at this time to be the greater risk,” Federal Reserve Chairman Ben S. Bernanke told Congress yesterday, according to Bloomberg News, though “uncertainties have risen, and therefore a little more flexibility might be desirable.”
In his comments before the Joint Economic Committee, he made no mention of a possible cut in the federal funds rate, which the policymaking Federal Open Market Committee last week kept at 5.25 percent. Some analysts expect an increase as soon as the FOMC’s next meeting.
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“I do want to emphasize that we have not shifted away from an inflation bias,” to a neutral economic policy, Bernanke said. The Fed’s preferred benchmark for the economy – the index of personal consumption expenditures, excluding food and energy – rose 2.3 percent in the 12 months ending in January and has been at or above Fed officials’ 2-percent “comfort zone” for 34 months.
“He was clarifying that inflation risks are still existent,” Jason Schenker, an economist at Wachovia Corp. in Charlotte, N.C., told Bloomberg. “This is further reinforcement that the Fed is on hold for the rest of the year.” Schenker had previously predicted a reduction by June.
Responding to criticisms of the Fed’s role in allowing so many subprime borrowers to get mortgages they couldn’t repay, Bernanke told the panel that the Fed “needs more clarity” about its authority over non-bank subsidiaries of bank holding companies. A federal predatory lending law “is worth looking at,” he added.
