Ben Bernanke stuck to the
recent script in testimony before Congress Wednesday, saying he shares his colleagues' view that some further tightening of official interest rates might be needed to fight inflation.
The statement repeated language from the Fed's Jan. 31 meeting, at which policymakers raised the fed funds rate to 4.5% and left the door open for one or two more hikes.
Bernanke, who took over as chairman from Alan Greenspan on Feb. 1, told Congress that the economy is vulnerable to inflation pressures on several fronts, particularly from energy prices, which "may pass through into the prices of non-energy goods and services or have a persistent effect on inflation expectations." He also cited high capacity use at factories and the possibility that "output could overshoot its sustainable path."
"In these circumstances, the FOMC judged that some further firming of monetary policy may be necessary, an assessment with which I concur," Bernanke said.
Notwithstanding that risk, Bernanke used his first major policy speech to reiterate his predecessor's belief that the U.S. is on the right economic track, with solid growth generally balanced by improvements in worker output.
"The U.S. economy performed impressively in 2005. Real gross domestic product increased a bit more than 3%, building on the sustained expansion that gained traction in the middle of 2003," he said. "Payroll employment rose 2 million in 2005, and the unemployment rate fell below 5 percent. Productivity continued to advance briskly."
Bernanke noted that inflation pressures increased through the year and got worse when hurricanes ravaged the Gulf Coast, boosting energy prices, squeezing household budgets and raising business costs. "Nevertheless, the increase in prices for personal consumption expenditures excluding food and energy, at just below 2%, remained moderate, and longer-term inflation expectations appear to have been contained."
"The hurricanes left an imprint on aggregate economic activity as well, seen, in part, in the marked deceleration of real GDP in the fourth quarter. However, the most recent evidence -- including indicators of production, the flow of new orders to businesses, weekly data on initial claims for unemployment insurance, and the payroll employment and retail sales figures for January -- suggests that the economic expansion remains on track."