Bernanke Says Fed Monitoring Weak Dollar Effect on Inflation, and Putting the Break on Interest Rates Cuts
This morning Federal Reserve Chairman Ben S. Bernanke signaled that interest rates will hold steady for now while he raised concerns about the inflationary effects of a dollar down 16 percent in the past year against the euro.
The Fed is working with the Treasury to "carefully monitor developments in foreign exchange markets'' and is aware of the effect of the dollar's decline on inflation and price expectations, Bernanke said today in his first speech on the economic outlook in two months. In addition, interest rates are "well positioned'' to promote growth and stable prices, he said.
The dollar climbed more than 1 cent against the euro and the price of gold dropped almost $14 after Bernanke's remarks. Policy makers lowered the benchmark rate 3.25 percentage points since September to 2 percent to alleviate the damage to the economy from the credit crisis and housing recession.
"I can't recall such a strong defense of the dollar from a Fed chairman,'' said Sophia Drossos, a currency strategist at Morgan Stanley in New York, who used to work at the New York Fed, where she helped manage the central bank's foreign-exchange holdings. "The Fed is putting its marker down in letting the market know that a weaker dollar would be detrimental.''
Published on June 3, 2008
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