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Bernanke Says Fed Policy Must Be Forward-looking

Posted on: Thursday, 25 May 2006, 14:00 CDT

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke said in a letter released on Thursday that interest-rate policy must be forward looking and rely on the central bank's view of how the economy is evolving.

"Monetary policy must be forward looking and depend on the Federal Reserve's best assessment of the economic outlook as inferred from economic and financial information," Bernanke said in a May 24 letter to Rep. Jim Saxton, chairman of the congressional Joint Economic Committee.

"Indeed, the (Fed's policy-setting) Federal Open Market Committee was quite explicit on this point in the statement issued after its meeting on May 10," he added, citing the Fed's most recent interest-rate announcement, which said "some further policy firming may yet be needed."

In his letter, Bernanke said the relative stability of prices outside of the volatile food and energy areas "has been enhanced by the fact that long-term inflation expectations appear to remain well contained."

"Of course inflation expectations will remain low only so long as the Federal Reserve demonstrates its commitment to price stability," he added.

The letter, released by Saxton's office, was in response to questions the lawmaker submitted in connection with an April 27 hearing his committee held at which Bernanke testified.

Source: REUTERS

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