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Bernanke makes no rate promises

Associated Press
Published February 17, 2006

WASHINGTON - New Federal Reserve chairman Ben Bernanke refused Thursday to get pinned down on just how much higher interest rates will need to go to keep the economy and inflation on an even keel.

"There are two possible mistakes. One is to go on too long and one is not to go on long enough," Bernanke said during a Senate Banking Committee hearing. "And, it's a very difficult balancing act."

The comments came as Sen. Jim Bunning, R-Ky., worried that the Federal Reserve could push up interest rates too high and push the economy into a recession - something the central bank has been blamed for at various times in its history.

Bernanke smoothly moved through questions on a range of economic matters - including bloated trade and budget deficits and growing trade tensions with China.

On the future course of interest rates, Bernanke repeated a statement made Wednesday before the House Financial Services Committee that he agreed with an assessment made by his Federal Reserve colleagues in late January - while Alan Greenspan was chairman - that interest rates would probably need to move higher.

Bernanke, who took over the Fed helm on Feb. 1, will have the next word on interest rates on March 27-28 - his first meeting as Fed chief.

Economists predict the Fed will boost rates by another quarter percentage point to 4.75 percent at that time. This would mark the 15th increase of that size since the Fed began to tighten credit in June 2004.

Although economists and Fed officials disagree on how many more rate increases may be coming, most agree the Fed's rate-raising campaign is drawing to a close.

If the Fed waits too long to end its campaign, the economy could be crippled. If it stops too soon, inflation could get out of control.

On other matters, Bernanke said he would like to see China make progress on a more flexible currency system.

"I agreed they need to do more," he told Sen. Chuck Schumer, D-N.Y. "I appreciate your frustration senator."

On the budget deficit, which the White House predicts will swell to $423-billion, a record in dollar terms, Bernanke said: "Reducing the fiscal deficit is an important priority."

[Last modified February 17, 2006, 02:15:35]

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