Bernanke Promises Vigilance

Even though the once-barreling U.S. economy is slowing down, Federal Reserve Chairman Ben S. Bernanke on Monday called recent increases in inflation unwelcome and pledged to make sure surging energy prices don’t make things worse.

In deciding the Federal Reserve’s next rate move in late June, Bernanke said the inflation outlook “will receive particular scrutiny.” Fed policymakers “will be vigilant” to ensure that the recent pattern of higher readings in core inflation -- which excludes food and energy prices -- “is not sustained,” he said in remarks prepared for an international monetary conference here.

Bernanke offered his most extensive assessment of current economic conditions and the challenges facing Fed policymakers.

“With the economy now evidently in a period of transition, monetary policy must be conducted with great care and with close attention to the evolution of the economic outlook,” Bernanke said.

So far this year, inflation at the consumer level has been elevated in large part by rising energy prices, Bernanke said.

As measured by the consumer price index, core inflation rose at an annual rate of 3.2% over the last three months and 2.8% over the last six months. “These are unwelcome developments,” he said.

Fed policymakers pay close attention to core inflation figures to get a better sense of how prices of many other goods and services are behaving. As these core measures have marched higher, economists have worried that surging energy prices are feeding into higher price tags for more and more items.

Oil prices are hovering around $73 a barrel, just below the record high of $75. Likewise, gasoline prices have climbed, topping $3 a gallon in some areas.

To combat inflation, Fed policymakers have boosted interest rates 16 times since June 2004. The Fed, which next meets June 28 and 29, has said that coming rate decisions will rely on how barometers of economic activity and inflation look.

Some economists expect the Fed to raise rates again at that time to blunt inflation, and they thought Bernanke’s remarks Monday supported such a move. Others, however, think the Fed will leave rates alone, taking a pause in its two-year rate-raising campaign to assess conditions.

The economy, which grew at a brisk 5.3% pace in the opening quarter of this year, is slowing to a more moderate level, Bernanke said. Higher energy prices are playing a role by making some consumers more cautious in their spending. Another factor is a cooling housing market, he said.

“The anticipated moderation of economic growth seems now to be underway,” he declared.

Private economists believe economic growth in the April-through-June quarter will probably clock in around 2.5% or slightly better.

Bernanke, who took the Fed helm on Feb. 1 after longtime Chairman Alan Greenspan retired, has gotten off to a bumpy start in the way he has communicated with financial markets. And his resolve to fight inflation also has come to be questioned.

The Fed chief’s remarks on Monday were partly aimed at sharpening his credibility as an enemy of inflation, some economists said.

“This is Bernanke flexing his inflation-fighting muscles,” said Richard Yamarone, an economist with Argus Research. Yamarone is among those predicting another rate increase in June.