Federal Reserve Chairman Ben Bernanke, delivering his first economic report to Congress on Wednesday (Feb. 15), declared that the economy has snapped smartly out of an end-of-year lull.
According to an Associated Press report, Bernanke noted that inflation and other risks remain, leaving the door open to higher interest rates in the future.
Recent economic barometers on jobs, production, retail sales and other business activity in January “suggests that the economic expansion remains on track,” Bernanke said in prepared testimony to the House Financial Services Committee.
The economy in the final quarter of last year hit a rough patch, growing by an anemic rate of just 1.1%, the slowest in three years, as lingering fallout from Gulf Coast hurricanes and the toll of high energy prices led to belt tightening by consumers and businesses. Most private economists are expecting good growth in the current January-to-March quarter.
High energy prices, a strengthening labor market where unemployment dipped to a 4 1/2-year low, and a solidly growing economy could fan inflation pressures – forces that the Fed will need to keep a close eye on, Bernanke said.
Bernanke, whose first day on the job was Feb. 1, said he agreed with Fed policy-makers’ assessment at their Jan. 31 meeting that interest rates may need to move higher.
The Fed judged that some further firming of monetary policy may be necessary, “an assessment with which I concur,” he said.
At the January meeting, then-Fed chairman Alan Greenspan’s last piece of business was to boost a key interest rate to 4.5%, the highest in nearly five years to fend off inflation. It marked the 14th increase since the Fed began to tighten credit in June 2004.
Before Bernanke became Fed chief, Fed policy-makers had differed on how much higher interest rates need to go but still signaled that the nearly two-year rate-raising campaign would probably be drawing to a close this year.
Bernanke said decisions on the future course of interest rates will depend more heavily on what upcoming reports say about economic activity and inflation.