Bernanke & Co. are being pulled in different directions by the economic data, so don't look for a rate cut—or rate hike—soonNote to investors: The Federal Reserve remains focused on inflation, so don't expect a rate cut anytime soon. However, given the recent weakness in economic data, a rate hike doesn't appear to be in the cards either. Indeed, with growth falling short of the Fed's outlook, and inflation remaining uncomfortably high, it appears the central bank may be on hold for a long while.
That was the message from Fed Chairman Ben Bernanke's Mar. 28 testimony before the Joint Economic Committee of Congress. Both Washington and Wall Street were interested to hear Bernanke's interpretation of the Federal Reserve's policy statement following the Fed's meeting on Mar. 21 (see BusinessWeek.com, 3/21/07, "Why the Fed Didn't Raise Interest Rates").
That statement created some confusion about which way the Fed was leaning on interest rates. His answer: Inflation is still concern No. 1, but the policymakers also have new concerns about the economy's outlook. In fact, "risks have increased on both sides," said the Fed chairman in response to a lawmaker's question. And when asked directly if the policy statement's new wording was meant to convey a move toward a neutral policy stance that might imply an increased inclination to cut rates, he said only that the statement was meant to give the Fed more flexibility in future decisions.
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