from Bloomberg:
Bernanke Says Fed Sees Slower Growth, Inflation Risk (Update5)
By Craig Torres and Scott Lanman
Nov. 8 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. economy is likely to ``slow noticeably'' this quarter while high commodity prices and a weaker dollar may stoke inflation ``for a time.''
Bernanke said the Federal Open Market Committee, which sets the benchmark U.S. interest rate, saw risks to both growth and prices at its Oct. 31 meeting, when officials reduced the rate by a quarter-point to 4.5 percent. He added the Fed ``will be very dependent on the data'' and ``will respond as needed'' to keep growth and inflation stable.
``The committee expected that the growth of economic activity would slow noticeably in the fourth quarter,'' Bernanke said in testimony to the congressional Joint Economic Committee. While the FOMC anticipated growth to improve later next year, ``the committee also saw downside risks to this projection'' if the housing slump spilled into spending, he said.
The 53-year-old Fed chief is fighting on several fronts to maintain stable markets, keep the six-year economic expansion going and contain inflation expectations. Officials cut interest rates twice in the past two months, while signaling in the Oct. 31 statement they are reluctant to lower borrowing costs further.
``The Federal Reserve is stuck,'' said Allen Sinai, president of Decision Economics Inc. in New York. ``If the inflation risk wasn't there, then the prospects for the economy suggest much lower interest rates.''
Markets React Treasury notes rose, stocks fell and the dollar dropped after Bernanke's remarks were released. The yield on the benchmark 10-year note was 4.28 percent at 12:10 p.m. in New York, down from 4.31 percent late yesterday. The Standard & Poor's 500 stock index fell 6.88, or 0.5 percent, to 1468.74. The dollar was at $1.4675 per euro, from $1.4637 yesterday.
The dollar fell even after Bernanke's counterpart, European Central Bank President Jean-Claude Trichet, said that ``brutal'' currency moves are never welcome. The dollar has fallen more than 4 percent against the currency shared by 13 European Union members in the past month, spurring U.S. export competitiveness while adding to price pressures.
The inflation outlook was ``subject to important upside risks'' from prices of crude oil and other commodities and the weaker dollar, Bernanke said. ``These factors were likely to increase overall inflation in the short run and, should inflation expectations become unmoored, had the potential to boost inflation in the longer run as well.'' .....(more)
The complete piece is at:
http://www.bloomberg.com/apps/news?pid=20601087&sid=av0XMJHLCbj8&refer=home
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