Bernanke Praises QE2, Warns About Higher Oil
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Federal Reserve Chairman Ben Bernanke gave his semiannual Monetary Policy Report to the Senate today and discussed among other things that the recovery is taking hold. Bernanke praised the results of QE2 and noted that inflation remained subdued. He also warned that the recent developments in North African and the Middle East pose as risk to the economy if higher oil prices are sustained.
While unemployment remains high, rising household and business confidence, accommodative monetary policy, and improving credit conditions are "likely to lead to a somewhat more rapid pace of economic recovery in 2011 than we saw last year," Bernanke said.
Bernanke reiterated his view that it could be several years before the unemployment rate returns to a more normal level.
Bernanke and FOMC participants see inflation remaining low, with the most recent projection of inflation of about 1-1/4 to 1-3/4 percent this year and in the range of 1 to 2 percent next year and in 2013. While inflation remains low, deflation no longer appears a primary concern for Bernanke.
Despite the rise in oil and other commodities, including the recent situation in the Middle East, Bernanke said it will likely only lead to a temporary and relatively modest increase in U.S. consumer price inflation. That said, Bernanke warns that a sustained rise in commodities prices "would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored."
On QE2, Bernanke said "a wide range of market indicators supports the view that the Federal Reserve's recent actions have been effective." As examples of this, Bernanke cited equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation-indexed securities has risen to historically more normal levels.
Bernanke said the Fed will continue to regularly review the ongoing $600 billion asset purchase program and will adjust it as needed.
While unemployment remains high, rising household and business confidence, accommodative monetary policy, and improving credit conditions are "likely to lead to a somewhat more rapid pace of economic recovery in 2011 than we saw last year," Bernanke said.
Bernanke reiterated his view that it could be several years before the unemployment rate returns to a more normal level.
Bernanke and FOMC participants see inflation remaining low, with the most recent projection of inflation of about 1-1/4 to 1-3/4 percent this year and in the range of 1 to 2 percent next year and in 2013. While inflation remains low, deflation no longer appears a primary concern for Bernanke.
Despite the rise in oil and other commodities, including the recent situation in the Middle East, Bernanke said it will likely only lead to a temporary and relatively modest increase in U.S. consumer price inflation. That said, Bernanke warns that a sustained rise in commodities prices "would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored."
On QE2, Bernanke said "a wide range of market indicators supports the view that the Federal Reserve's recent actions have been effective." As examples of this, Bernanke cited equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation-indexed securities has risen to historically more normal levels.
Bernanke said the Fed will continue to regularly review the ongoing $600 billion asset purchase program and will adjust it as needed.
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