Fed's Bernanke Expects Inflation to Remain Low
DOW JONES NEWSWIRES
April 15, 2004 8:13 p.m.; Page A2
WASHINGTON -- A Federal Reserve governor said strong productivity growth and continued slack in the economy should restrain inflation for the next couple of years.
The Fed's Ben Bernanke said there haven't been enough data to change his views on low inflation despite the consumer-price report for March showing the strongest gain in core inflation, which excludes food and energy prices, since November 2001.
Mr. Bernanke, who is more sanguine about the inflation outlook than some of his Fed colleagues, said a large output gap -- the difference between what the economy can produce and what it is producing -- has been a good indicator of low inflation. As the gap shrinks, there is more uncertainty about whether there is slack in the economy. It then becomes a trickier indicator, he said. "It's early to say whether or not there's been significant movement in what we should be forecasting for inflation a year from now," Mr. Bernanke said after a speech in Chicago.
Concerns about accelerating inflation would cause the Fed to move quickly to raise its interest-rate target above the current 1%.
Meanwhile, initial claims for unemployment benefits rose more than expected last week, but the increase may not be negative for the job market. Claims rose 30,000 to a seasonally adjusted 360,000 in the week ended April 10, the Labor Department said. But a department spokesman cautioned against focusing on the weekly figure, noting that the first full week of April has traditionally been one of the most difficult weeks to calculate accurately because of religious holidays.
The four-week moving average for new claims, viewed as a better gauge because it smooths out some volatility, was up by a smaller 6,750, to 344,250, the highest level since early March.
Separately, the Federal Reserve Bank of New York's Empire State survey showed strong manufacturing activity in the New York area, with the index jumping to 36 in April from 25.3 in March. Philadelphia's Federal Reserve Bank reported that general business conditions improved to 32.5 in April from 24.2 a month earlier.
Economists said the strong growth that began last summer might persuade businesses to begin rehiring. In recent weeks, the job market has started to improve after lagging behind the rest of the recovery. In March, employers created 308,000 new jobs, the largest increase in four years. Even so, the unemployment rate rose by 0.1 percentage point to 5.7% as the improving picture encouraged people who had dropped out of the labor market to look for work.
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