Marketplace Report: Gas Prices and Inflation Fears

MADELEINE BRAND, host:

Back now with DAY TO DAY. A lot of people are worried about rising oil prices, and that include Federal Reserve Chief Ben Bernanke. In testimony on Capitol Hill today, Bernanke said high oil prices could cause inflation, and that could mean he'd have to take action and raise interest rates. Bob Moon of Marketplace's New York bureau is here now. And, Bob, what exactly is Bernanke worried about?

BOB MOON reporting:

Well, Madeleine, of course, they've been raising interest rates at the Federal Reserve, but Wall Street has been interested in seeing a pause, at least, in those interest rates hike. The big concern is what these rising oil prices could do to fuel inflation, which is the main reason the fed's been steadily raising those rates for the past several months now--to keep inflation in check. So whether the fed needs to keep raising interest rates could end--end up depending a lot on what happens to these energy prices. And Bernanke was testifying today before Congress' Joint Economic Committee and he was doing a little verbal head scratching about what rising energy prices might mean to inflation, specifically, but also to the economy, in general.

Mr. BENJAMIN BERNANKE (Chairman, Federal Reserve): On the one hand, they directly affect the cost of living, inflation. On the other hand, by taking purchasing power away from consumers, they tend to slow economic activity and so it does produce a difficult problem.

MOON: Now, that dilemma means that the fed's future course on boosting interest rates is uncertain, at the moment. Bernanke did hint that the fed might be ready to pause, at some point, to figure this all out. But at the same time, he was telling the lawmakers that vigilance, in regard to inflation, is really essential to keep the economy healthy.

BRAND: And did he say, specifically, what circumstances would have to arise to cause the central bank to raise interest rates some more?

MOON: Well, as I mentioned, he did offer that his strongest hint that the rates might be coming down, or at least they might pause the interest rate hikes for a while, at least long enough to get a better handle on what these rising energy prices mean to the economy. But listen to this, at the same time he's keeping his options open on picking things up again if the money policymakers decide that more action's needed.

(Soundbite of Federal Reserve Chairman's testimony)

Mr. BERNANKE: Of course, a decision to take no action in a particular meeting does not preclude actions at subsequent meetings. And the committee will not hesitate to act when it determines that doing so is needed to foster the achievement of the Federal Reserve's mandated objectives.

MOON: Well, Wall Street reads that to mean that the fed chairman wants to pause the interest rate increases, and that investors will be getting a break from those. Stocks rose today; the dollar fell as Bernanke was testifying before the Joint Economic Committee.

BRAND: And tell us a little bit about his style. How does it differ from his predecessor Alan Greenspan?

MOON: Well he has indicated that he wants to be a little sharper, a little clearer in tone on the fed's course on this. The problem is, according to one analyst who was quoted this morning, the overall tone is really decided by the fed's crystal ball and that's not very clear right now. We'll be taking a closer look at this today in the Marketplace newsroom.

BRAND: Bob Moon, thank you. Bob Moon of public radio's daily business show, Marketplace. It's produced by American Public Media.

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