Careful Bernanke Assures Fed Is Watching Inflation

NEW YORK ( TheStreet) -- Federal Reserve Chairman Ben Bernanke walked a careful line between sticking to his script and delivering on the transparency that his first press conference had promised on Wednesday.

The chairman appeared stiff and his voice quavered at times as he took questions from a room of journalists. He also frequently slipped back into the same "Fedspeak" that the briefing sought to unravel as reporters drilled him about rising oil prices, high unemployment levels and the meaning of the "extended period" phrase.

Bernanke clearly erred on the conservative side, which is unsurprising considering concerns that an unscripted question-and-answer session could create market volatility.

However, he appeared more like the composed congressional-hearing Bernanke that television audiences have grown accustomed to as the conference continued.

Federal Reserve Chairman Ben Bernanke

The briefing was a success in the fact that markets remained stable throughout the conference and even rose to a stronger close in the final hours of trading.

Whether it was successful on the transparency front is another matter.

Bernanke clearly tried to assure that economic conditions are getting better and that both inflation and unemployment will stabilize in time, but he did so with the same formal language that seemed ripped from the FOMC statement that was released earlier in the afternoon.

He said the factors weighing on gross domestic product "appear to be transitory" -- a word he repeated throughout the conference. He tiptoed around clarifying the Fed's "extended period" language by giving the usual response about the importance of resource slack and inflation expectations.

He did offer some insight into the Fed's thinking when he said "the trade-offs are becoming less attractive" in reference to quantitative easing measures' effect on stock prices and job growth versus higher inflation. In a refreshingly direct statement, Bernanke said it was no longer clear that better payrolls could come without further increases in inflation.

"It's my view that in order to get longer-term job growth, we do have to keep inflation under control," he said.

Throughout the conference, Bernanke emphasized the importance of making sure inflation expectations are managed as the central bank navigates its dual mandate of lowering unemployment and fostering price stability.

Acknowledging that the Fed took extraordinary measures to ensure economic stability, Bernanke said decisions regarding further steps will have to take into account inflation pressures and expectations.

Bernanke's response to a question about rising oil prices was to underline the importance of keeping medium-term inflation expectations "well-anchored" so that the Fed can "see how things evolve." Bernanke added, "If it looks like inflation expectations are becoming less well anchored, we'll have to respond to it."

Projections for 2011 economic growth were lowered to 3.1%-3.3% from January's range of 3.4%-3.9%, and projections for 2011 core inflation were raised to 1.3%-1.6% from 1% to 1.3%. Unemployment is now expected to fall between 8.4% and 8.7% in 2011, compared with prior expectations for a range of 8.8% to 9%.

The briefing, which is meant to increase transparency at a time when rising food and energy prices have triggered concerns about the Fed's ability to keep inflation in check, follows an FOMC statement that offered little new information. The committee voted to keep the target interest rate at zero to 0.25%, maintained language promising to keep interest rates low "for an extended period" and made no changes to its $600 billion asset-purchase plan.

The committee acknowledged recent increases in inflation but repeated expectations that it will be "transitory" and reiterated its promise to "pay close attention to the evolution of inflation and inflation expectations."

-- Written by Melinda Peer in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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