For those hoping for a definitive word from the Federal Reserve on where interest rates will go next, Chairman Ben Bernanke didn't provide it on Monday. But his speech may well have signaled that the Fed is more likely to continue to raise rates in the near future than lower them. In a highly anticipated speech before the Economic Club of New York, Bernanke essentially said that in determining where interest rates would go from here, the Fed would need to take a wait-and-see policy -- taking into account as much data as possible. Rates could go higher or lower depending on the data and how policymakers interpret it, he said. "The information is not always easy to extract and -- as in the current situation -- the bottom line for policy appears ambiguous," Bernanke said. "Given this reality, policymakers are well advised to follow two principles familiar to navigators throughout the ages: First, determine your position frequently. Second, use as many guides or landmarks as are available." But Bernanke, who said he was speaking for himself and not for the Fed, seemed more inclined to continue monetary restraint. The focus of his speech was on how the Fed should respond to the recent inversion of the interest rate yield curve. Typically, interest rates are higher on long-term bonds and loans than on short term ones. But in recent weeks, the effective rates on longer-term Treasury notes have fallen below those of short-term ones. In the past, such inversions have been associated with economic slowdowns and recessions. But Bernanke said the evidence suggests that the inversion was the result not of the market expecting an economic slowdown, but of investors becoming increasingly confident in the long-term economic outlook and of certain special circumstances, such as the global glut of savings.
"I would not interpret the currently very flat yield curve as indicating a significant economic slowdown to come," he said in the speech. Assuming that longer-term rates are declining because investors are less worried about the long-term economic situation, "the effect is financially stimulative and argues for greater monetary policy restraint, all else being equal," he said. Since June 2004, the Fed has raised its benchmark overnight target rate 3.5 percentage points to 4.5%. The rate hikes have come at 14 straight meetings of the Federal Open Market Committee. The FOMC will meet next week to consider whether to hike rates again and what its outlook will be for future rates.