Fed Chief Ben Bernanke Speaks To Congress
Dr. Ben Bernanke, the new Chairman of The Federal Reserve, made statements before the House Financial Services Committee yesterday in his first policy report to Congress as The Fed chief. In his statement, Bernanke said:
He said a lot more in his testimony to Congress, but didn't give any obvious hints about The Federal Open Market Committee's (FOMC) next move related to interest rates (The FOMC is the body within The Federal Reserve system that makes decisions about interest rates. As The Chairman of The FOMC, Ben Bernanke has the final word about interest rates when the FOMC meets to determine whether key banking rates should be raised, lowered or kept as they are. The FOMC meets 8 times per calendar year.)
Is another 0.25 percentage point increase to the prime rate coming after the next FOMC meeting? It's too soon to say for sure, but as of right now, the U.S. economy is looking rather warm, with low unemployment and a recent government retail sales report for January, 2006 that blew away economists' expectations. Over the next few weeks, If the data that The Fed monitors indicate that the economy is still doing great, then another interest rate hike should be expected on March 28, as the Fed will take measures to curb inflation (The Fed will be paying particular attention to the personal consumption expenditures price index.)
For more perspective, consider this: the folks who trade in Federal Funds Futures are now predicting @ almost 100% (based on current pricing) that The Fed will raise The Federal Funds Rate by another 0.25 percentage points at the March 28, 2006 FOMC meeting (this would translate to a 0.25 percentage point increase to the Wall Street Journal Prime Rate [a.k.a. the U.S. or national prime rate].)
Stay tuned for more prime rate news. The current WSJ Prime Rate (U.S. prime rate) is 7.5%.
"...In the announcement following the January 31 meeting, the Federal Reserve pointed to risks that could add to inflation pressures. Among those risks is the possibility that, to an extent greater than we now anticipate, higher energy prices may pass through into the prices of non-energy goods and services or have a persistent effect on inflation expectations. Another factor bearing on the inflation outlook is that the economy now appears to be operating at a relatively high level of resource utilization. Gauging the economy's sustainable potential is difficult, and the Federal Reserve will keep a close eye on all the relevant evidence and be flexible in making those judgments. Nevertheless, the risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately--in the absence of countervailing monetary policy action--to further upward pressure on inflation. In these circumstances, the FOMC judged that some further firming of monetary policy may be necessary, an assessment with which I concur...
...Although the outlook contains significant uncertainties, it is clear that substantial progress has been made in removing monetary policy accommodation. As a consequence, in coming quarters the FOMC will have to make ongoing, provisional judgments about the risks to both inflation and growth, and monetary policy actions will be increasingly dependent on incoming data..."
He said a lot more in his testimony to Congress, but didn't give any obvious hints about The Federal Open Market Committee's (FOMC) next move related to interest rates (The FOMC is the body within The Federal Reserve system that makes decisions about interest rates. As The Chairman of The FOMC, Ben Bernanke has the final word about interest rates when the FOMC meets to determine whether key banking rates should be raised, lowered or kept as they are. The FOMC meets 8 times per calendar year.)
Is another 0.25 percentage point increase to the prime rate coming after the next FOMC meeting? It's too soon to say for sure, but as of right now, the U.S. economy is looking rather warm, with low unemployment and a recent government retail sales report for January, 2006 that blew away economists' expectations. Over the next few weeks, If the data that The Fed monitors indicate that the economy is still doing great, then another interest rate hike should be expected on March 28, as the Fed will take measures to curb inflation (The Fed will be paying particular attention to the personal consumption expenditures price index.)
For more perspective, consider this: the folks who trade in Federal Funds Futures are now predicting @ almost 100% (based on current pricing) that The Fed will raise The Federal Funds Rate by another 0.25 percentage points at the March 28, 2006 FOMC meeting (this would translate to a 0.25 percentage point increase to the Wall Street Journal Prime Rate [a.k.a. the U.S. or national prime rate].)
Stay tuned for more prime rate news. The current WSJ Prime Rate (U.S. prime rate) is 7.5%.
