A signal of tightening

When Federal Reserve Chairman Ben Bernanke held the first-ever press conference by a sitting head of the nation’s central bank, did he hint of the Fed’s next moves?

“Well Mary, before I answer, it’s good for us to remember that the Federal Reserve has been given two mandates by Congress. Congress has said, ‘Fed, we want you to work toward, number one, fully employing everyone who wants to work and, number two, putting the economy in a position … to have low inflation.’

“Now recently the Federal Reserve, Mr. Bernanke and his colleagues, have been focusing totally on that first mandate — trying to get the economy to grow faster so that there will be more jobs generated.  Inflation for the last three years has really not been an issue.  Now, we’re beginning to see, I think as most people know, inflation becoming an issue.  Food prices, fuel prices, other prices are rising, and our inflation indicators are going up. And so the question is whether the Fed is going to have to shift.

“Now if they do shift, what that will mean is they will engage in what we call tightening. They will either stop printing as much money as they are printing, or actually they’ll start to destroy some of the money they’ve printed. And they will raise interest rates.

“So that’s what all economists and Fed watchers are looking out for: When will the Fed make this move?  Bernanke hinted that they won’t make the move perhaps for another 3 to 4 months. But you’ll know it when you see an announcement in the morning paper that says, ‘Fed raises interest rates.’ That will suggest a big shift in Federal Reserve policy.”

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