Gentler Ben Raises 'Pause'

The Federal Reserve, conscious that economic data is not always up to date, could "pause" its rate-tightening campaign even if it lacks evidence that inflation is completely vanquished, Ben Bernanke said in testimony to Congress Thursday.

Speaking to the Joint Economic Committee, Bernanke said economic growth remains strong but should moderate as the year progresses. While energy prices remain a risk, the "outlook for inflation is reasonably favorable," while inflation in core prices indices "has remained roughly stable over the past year."

Bernanke, whose testimony is being combed for clues to the future of interest-rate policy, appeared to open the door slightly to the possibility the Fed will pause its tightening campaign after next month's meeting. His comments built on previous pledges from Fed members that policy in coming months will depend on whether growth or inflation appears ascendant in incoming economic data.

"In particular, even if in the committee's judgment the risks to its objectives are not entirely balanced, at some point in the future the committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook," Bernanke said.

"Of course, a decision to take no action at a particular meeting does not preclude actions at subsequent meetings, and the committee will not hesitate to act when it determines that doing so is needed to foster the achievement of the Federal Reserve's mandated objectives."

At its last meeting, the Fed raised the official fed funds lever by 25 basis points to 4.75%, noting that economic growth looked likely to moderate to a sustainable pace, although risks like capacity constraints and high energy prices still threatened the balance.

In his testimony Thursday, Bernanke held to that view, noting that policymakers still considered core inflation a risk, with the belief that some further policy firming may be needed to keep the risks balanced.

"In my view," Bernanke said, "data arriving since the meeting have not materially changed that assessment of the risks. To support continued healthy growth of the economy, vigilance in regard to inflation is essential," Bernanke said Thursday.