Jan. 16 - In his last scheduled public appearance, Federal Reserve Chairman Ben Bernanke explained why, despite rising interest rates and an adjustment in the Fed's bond buying program, he is confident inflation will remain in check. Bobbi Rebell reports.
Fed Chairman Ben Bernanke, in the homestretch of his term, answering questions at the Brookings Institution saying concerns about financial stability should not deter the Fed from taking whatever steps it needs, and that he is confident inflation will remain in check even as the Fed pulls back its support: SOUNDBITE: BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE (ENGLISH) SAYING: "It's always possible for the Fed to raise rates too late or too early, and so on. I think we have plenty of tools now, at this point. We've developed all the tools we need to manage interest rates, to tighten monetary policy, even if the balance sheet stays where it is or gets bigger. And, because we can do that, that means that we can run monetary policy in a normal way and avoid any risk of undue inflation or other such problems. I don't think that's a concern." Inflation has risen just 1.1 percent in the past 12 months, well below the Fed's 2 percent target. And even though the unemployment rate fell to 6.7 percent in December, Bernanke expressed concerns about the long term impacts of the recession on labor market: SOUNDBITE: BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE (ENGLISH) SAYING: "One, of course, is the effect of long term unemployment on labor supply. Obviously, there has been declines in labor force participation, part of which is certainly due to ongoing trends that were in place before the crisis, but some of which might be due to the depth of the recession itself. And that could effect the available labor supply going forward, and, of course, has very important direct effects on those who are unemployed and their families." He said that was a motivation for being aggressive with monetary policy, and also talked about his disappointment with the lack of gains in productivity during the recovery: SOUNDBITE: BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE (ENGLISH) SAYING: "We don't fully understand why. Some of it may just be low demand, for example. But it could be that the financial crisis has led to slower pace of innovation, slower pace of firm formation, less capital investment, which has led in turn to a less rapid pace of innovation. " Janet Yellen, currently Vice Chair at the Fed, takes over the top job on February 1st.