A recent increase in U.S. inflation is driven primarily by rising commodity prices globally, and is unlikely to persist, Federal Reserve Chairman Ben Bernanke said on Monday.
The comments stood in sharp contrast to a string of U.S. central bank officials, some of whom have argued the time is coming for the Fed to begin tightening monetary policy.
Earlier on Monday, Atlanta Fed President Dennis Lockhart struck a similar note, saying inflation would probably remain moderate.
Along the same lines, Bernanke argued that supply and demand factors are driving energy and commodity costs higher, but that these should eventually stabilize, allowing the United States to avoid any inflation troubles.
I think the increase in inflation will be transitory, Bernanke said in response to questions after a speech. Our expectation at this point is that in the medium term inflation, if anything, will be a bit low. We will monitor inflation and inflation expectations very closely.
The comments suggested the Fed chief is committed to completing a $600 billion stimulus program as scheduled in June, despite calls from some of his colleagues to consider cutting the effort short in light of an improving economy.
He's drawing the line between him and the hawks at the Fed, said Christopher Low, chief economist at FTN Financial in New York.
The U.S. economy expanded at a 3.1 percent annualized clip in the fourth quarter, a solid performance but not one good enough to make up the ground lost during the severe recession of 2008-2009.
U.S. unemployment, while declining rapidly in recent months remains at an elevated 8.8 percent. Inflation, meanwhile, has edged higher. But at 2.1 percent in the year to February, growth in the consumer price index has yet to rise to levels that tend to make Fed officials uncomfortable.
In contrast, European Central Bank officials appear ready to pull the trigger and raise rates later this week as inflation worries have dominated the debate in Europe.
STICKING TO POLICY
Christopher Waller, research director at the St. Louis Federal Reserve Bank, told Reuters in an interview that the program's completion was all but in the bag.
There doesn't seem to be a lot of support, from what I can tell, to stop the program, Christopher Waller, research director at the St. Louis Federal Reserve Bank, told Reuters in an interview.
It would be reasonable to keep the balance sheet constant for at least a meeting (after June 30) and see how things are going, he said.
To do so, the Fed would have to continue its current policy of reinvesting the proceeds of securities that have matured or otherwise been paid off, Waller said.
Chicago Fed President Charles Evans, seen as one of the strongest backers of aggressive growth-boosting initiatives, told CNBC television the central bank's bond-buying program should be enough to get the economy back on its feet.
We've seen pretty good growth and the employment numbers are improving. It's quite likely that 600 could be about the right number, he said.
Still, both Bernanke and Lockhart stressed the importance of monitoring the potentially self-fulfilling expectations of consumers regarding price increases.
Lockhart also said the shock of the recession had made consumers a lot more cautious about their spending. While negative for short-term economic growth, the pattern is healthy in the long-run, and should help to address international imbalances characterized by high savings overseas and excess spending at home.
Consumer spending has been growing more slowly relative to income than it did before the recession, Lockhart told an audience of business executives at the Palm Beach Strategic Forum. I expect that this more measured consumption behavior is likely to persist.
(Additional reporting by Mark Felsenthal and Richard Leong)