Bernanke Sees Inflation Risk

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Fed Chairman Ben Bernanke has a tough job. He has to try and stave off inflation while attempting to stoke the fires of the US commerce engine. So far he’s done a decent job, but people are counting on him to fix problems that he’s not truly responsible for. Despite any steps he’s taken, he expects the US economy to slow considerably in the next quarter.

“The committee expected that the growth of economic activity would slow noticeably in the fourth quarter,” Bernanke said in testimony to the congressional Joint Economic Committee. While the FOMC anticipated growth to improve later next year, “the committee also saw downside risks to this projection” if the housings slump spilled into spending, he said.

The 53-year-old Fed chief is fighting on several fronts to maintain stable markets, keep the six-year economic expansion going and contain inflation expectations. Officials cut interest rates twice in the past two months, while signaling in the Oct. 31 statement they are reluctant to lower borrowing costs further.

“The Federal Reserve is stuck,” said Allen Sinai, president of Decision Economics Inc. in New York. “If the inflation risk wasn’t there, then the prospects for the economy suggest much lower interest rates.”

Factors are working against Bernanke finding the perfect solution. Oil prices, in particular, represent a type of wildcard that make adjusting to the economic news difficult. I’m sure we’ll hear plenty more from Bernanke in the next few months. Let’s hope he’s one of the greats when it comes to managing the way out of a near crisis.

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