Bernanke: Inflation hopes still untrained

Published: July 10, 2007 at 3:29 PM

CAMBRIDGE, Mass., July 10 (UPI) -- Public expectations of inflation have improved but still wrongly create economic-news driven market spikes, the U.S. Federal Reserve chairman said Tuesday.

"Although inflation expectations seem much better anchored today than they were a few decades ago, they appear to remain imperfectly anchored," Ben Bernanke told a National Bureau of Economics Research conference in Cambridge, Mass.

This is partly due to the fact that the public does not trust the Fed is really keeping prices stable, so they react to economic news in ways that sometimes aggravate inflation, Bernanke said.

If investors, businesses and consumers had greater confidence in the Fed, they would be less likely to react as they do and unwittingly provoke inflation, he said.

But Bernanke, who did not comment on the Fed's economic or interest-rate outlook, asserted inflation expectations were better anchored today than they were 30 years ago.

"The sharp increases in energy prices over the past few years have not yet led either to persistent inflation or to a recession -- in contrast, for example, to the U.S. experience of the 1970s," he said.

Controlled inflation is vital to good monetary policy, he said.

And he praised the Fed's research staff for "remarkably good" inflation forecasts.

© 2007 United Press International, Inc. All Rights Reserved.
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