Bernanke’s Talk of Inflation Fuels Possibility of Rate Hike
After Federal Reserve Chairman Ben Bernanke fired another warning shot on inflation, fanning expectations of higher interest rates, world stocks hit their lowest in almost two months, major government bonds fell, and the dollar rose on Tuesday.
The chairman said on Monday that the U.S. central bank will strongly resist rising long-term inflation expectations.
His remarks came less than a week after he gave a rare warning on the inflationary impact of a weak dollar.
Major central banks have stepped up their anti-inflation stance as oil prices have surged to record levels.
European Central Bank President Jean-Claude Trichet signalled last week that euro zone interest rates could rise in July.
Inflation is rising and expectations of higher interest rates are strengthening even though the global economy faces a U.S.-led slowdown and concerns persist about credit-related losses at investment banks.
This bodes ill for stocks and risky assets, while government bonds are unable to attract safe-haven bid as investors who fear inflation dump these instruments too.
US stocks opened lower, partly on Bernanke's comments, while the dollar rose. A stronger dollar didn't stop oil prices from rising further, however.
Published on June 10, 2008
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