WASHINGTON - Bloomberg
Federal Reserve Chairman Ben S. Bernanke said falling commodity prices, a stable dollar and slowing growth should bring down inflation, while warning the central bank will act should prices gains not moderate “in the medium term.”
Bernanke called dollar stability and price declines in oil and other commodities “encouraging.” Still, the inflation outlook remains “highly uncertain” and the Fed “is committed to achieving medium-term price stability and will act as necessary to obtain that objective,” he said.
Bernanke's speech to the Kansas City Fed Bank's two-day conference on financial stability in Jackson Hole, Wyoming also gave a preliminary view of how the central may alter its supervision of financial institutions. He again defended the Fed's role in keeping Bear Stearns Cos. from collapse, and said “the economy could hardly have remained immune from such severe financial disruptions.”
Economy in trouble:
The Fed chairman has tried for the past year to curb a global credit crisis that has led to a higher U.S. jobless rate, slower economic growth and some $505 billion in credit losses at financial firms. Inflation has accelerated, with food and energy costs pushing up consumer prices in the 12 months to July by the most in 17 years.
Bernanke asked Congress to give the Fed more authority over the U.S. payments system, and to consider devising a way to resolve failing investment banks. He also said regulators must shift their focus and consider how individual banks and brokers may together present large risks to the financial system.
“Making the systemic risk rationale for guidances and reviews” of financial firms “more explicit is certainly feasible and would be a useful step toward a more systemic orientation for financial regulation and supervision,” Bernanke said to the conference of scholars and central bankers.
The Fed has opened up lending to nonbanks for the first time since the Great Depression, accepted mortgage debt as collateral for loans and cut the interest rate on its discount window lending. The measures have broadened the Fed's oversight and lender-of-last resort role.
Bernanke opened the discount window to investment banks in March after rescuing Bear Stearns Cos. from bankruptcy. The Fed facilitated the firm's merger with JPMorgan Chase & Co. by loaning against $29 billion of Bear securities. It opened the discount window in July to Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.