Fed called not done with rates

Bernanke tells CNBC data may extend rise

May 02, 2006|By BLOOMBERG NEWS

NEW YORK -- Federal Reserve Chairman Ben S. Bernanke said the Fed is not necessarily done raising interest rates, as investors and the media interpreted his congressional testimony last week, CNBC reported yesterday.

Bernanke said economic data will determine the Fed's rate moves, CNBC anchor Maria Bartiromo said, referring to a discussion she had with Bernanke at the White House Correspondents' Association dinner in Washington Saturday.

"I asked him whether the markets got it right after his congressional testimony and he said, flatly, no," Bartiromo said. "He said he and his Federal Open Market Committee members were basically trying to create some flexibility for the Federal Reserve, saying the Fed may pause but the data will really dictate whether more rate hikes will occur."

The dollar rallied against the euro and the yield on two-year Treasury notes rose yesterday after the report. Bernanke and other Fed policymakers are trying to decide when to take a break after 15 consecutive rate increases since June 2004, the longest cycle in more than a quarter of a century.

The Fed had no immediate comment on CNBC's report.

Bernanke, who became Fed chairman in February, told the congressional Joint Economic Committee last week that the Fed may suspend the increases even if economic risks are tilted toward faster inflation.

The Fed expects economic growth to slow this year after gross domestic product expanded at a 4.8 percent annual rate in the first quarter. In February, the FOMC predicted a growth rate of 3.5 percent for the year.

Earlier yesterday, Atlanta Fed President Jack Guynn said policy is "very close" to a level that's "properly calibrated" to the outlook for moderating economic growth.

"If - and I emphasize if - my most likely forecast of sustainable output growth and modest inflation is right, then I am of the view that we are very close to having Fed policy properly calibrated for now," Guynn told business executives in Nashville, Tenn.

The latest economic data yesterday showed a broad-based expansion and more inflationary pressures. The Institute for Supply Management's factory index climbed to 57.3 in April from 55.2 in March.

Personal spending and incomes also rose, and the Fed's preferred price index, which is tied to personal consumption, increased 2 percent in March from a year earlier, the top of Bernanke's comfort zone. The 2 percent is in line with the FOMC's official forecast for 2006.

Fed policymakers next meet May 10, and economists surveyed by Bloomberg News unanimously expect the Fed to raise its main interest rate a 16th time to 5 percent.

The central bank started the run in June 2004, when the rate stood at 1 percent. Traders have been betting via futures contracts that the Fed will leave the rate unchanged at the June 28-29 meeting.

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