Fed governor Bernanke repeats confidence on prices

Much recent press comment has focussed on whether the US economy could be set for a period of deflation. In a speech made Thursday Ben Bernanke said he was confident that the Federal Reserve still had the fire power left, even if interest rates fell further, to support the US economy. In separate comments Richmond Fed president Alfred Broaddus said he did not see a widespread decline in prices as a "clear and present danger" in the United States.
Much recent press comment has focussed on whether the US economy could be set for a period of deflation. In a speech made Thursday Ben Bernanke said he was confident that the Federal Reserve still had the fire power left, even if interest rates fell further, to support the US economy. In separate comments Richmond Fed president Alfred Broaddus said he did not see a widespread decline in prices as a "clear and present danger" in the United States.

Federal Reserve Governor Ben S. Bernanke said Thursday the danger of a destabilising bout of deflation in the U.S. is "remote," partly because the U.S. central bank would still have the means to fight it even if it exhausts its ability to cut interest rates.

In a speech to the National Economists Club, Mr. Bernanke elaborated on Fed Chairman Alan Greenspan's recent assertion that the Fed will have plenty of other ways to keep the economy growing should it be forced to cut rates to zero.

The Fed's key federal-funds rate, the interest rate charged on overnight loans between banks, now stands at 1.25%, a 41-year low, after a half-percentage-point cut on 6 November. The Federal Open Market Committee's next meeting will be 10 December.

"For the foreseeable future, the chances of a serious deflation in the United States appear remote indeed, in large part because of our economy's underlying strengths but also because of the determination of the Federal Reserve and other U.S. policymakers to act preemptively against deflationary pressures," Mr. Bernanke said in prepared remarks.

After the Fed's latest action, Mr. Greenspan said in testimony before Congress that the bigger-than-expected cut was insurance against the small risk of a "significant decline" in the economy and will be reversed if no such decline materializes.

U.S. deflation not "present danger"-Fed's Broaddus

Richmond Federal Reserve Bank President Alfred Broaddus said on Tuesday he did not see a widespread decline in prices as a "clear and present danger" in the United States, but that it was in the range of conceivable risks since inflation is so low.

"I truly do not think that deflation is a clear and present danger in the U.S. economy currently or in the near-term outlook," Broaddus told the Charlotte World Affairs Council in answer to a question.

Still, he added that deflation wasn't inconceivable.

"In some sense I guess, when you think of the range of conceivable risk, you would have to add deflation to that currently," he said. "It's something that in conducting monetary policy we now have to at least be aware of that risk and make sure that we conduct policy in a way that prevents it from occurring," he added. "I'm confident that we can do that."

The regional Fed bank chief, who does not currently have a vote on the central bank's interest-rate setting panel, also said households and credit-worthy businesses did not appear to be facing trouble getting credit.

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