In historic press conference, Bernanke walks careful line on inflation concerns

Amanda Carey Contributor
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Chairman of the Federal Reserve Ben Bernanke made history Wednesday afternoon simply by opening his mouth. For the first time in the central bank’s 98 year history, the chairman held a public press conference and communicated directly with economists, bankers and investors around the world.

But did it matter? Ask most observers and they will say Bernanke’s press conference did not reveal anything particularly newsworthy. Bernanke confirmed the Fed will allow the latest round of quantitative easing to end in June as planned. He also sought to convey the Fed is taking inflation concerns very seriously, but that economic recovery is not in serious danger because of inflation.

“I think every central banker understands that keeping inflation low and stable is absolutely essential to a successful economy and we will do what’s necessary to ensure that happens,” said Bernanke.

At the same time, Bernanke said the Federal Reserve continues to see “the economic recovery as proceeding at a moderate pace.”

“The biggest thing he communicated was inflation,” said Anthony Randazzo, director of Economic Research at Reason Foundation. “Everything came back to inflation. He was asked about gas prices, his answer came back to inflation. He was asked about unemployment, his answer came back to inflation.”

Inflation has been a major concern in recent months, especially as it relates to economic growth. Bernanke again sought to allay concerns by saying “most factors appear to be transitory.” In other words, Bernanke expects that the factors causing inflation and weaker growth will not have long-term effects.

“It’s economic speak for temporary,” Randazzo told The Daily Caller. “The Fed view is that all of the signs for short term inflation are temporary hiccups that will not have long term impacts on the economy.”

Before the press conference, there was speculation that Bernanke could hint at another round of quantitative easing. The current round — $600 billion worth of bond-buying that has financed a large part of the national debt — will end in June. But Bernanke more or less put those rumors to rest.

“The trade-offs are getting less attractive at this point,” said Bernanke. “Inflation has gotten higher…it’s not clear we can get substantial improvements in payrolls without some additional inflation risk.”

He went on to say, “The conclusion that the second round was not effective is only validated if one thought this step was a panacea…we were clear from the very beginning that while we thought this was an important step, we were very clear this was not going to be a panacea; that it was only going to turn the economy in the right direction.”

On questions about the Fed’s role in rising gas prices, Bernanke largely punted. He called their negative effects on the stability of the dollar and economic growth a “double whammy.”

“There’s not much the Fed can do on gas prices per se,” Bernanke added. “Our view is that gas prices will not continue to rise at the recent rate.”

But Randazzo also pointed out that when asked a question about whether reduced spending could hurt economic growth, Bernanke took what is essentially a neutral position by saying cuts Congress have made so far have made no negative impact on economic growth.

“In other words,” said Randazzo, “he did not write off the need to cut spending.”