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Fed's Bernanke sees gradual rate hike

A top Fed official said Thursday that the central bank  should be able to push short-term interest rates up at a gradual pace, but the speed of expected rate hikes will be dictated by economic events.
/ Source: Reuters

The U.S. Federal Reserve should be able to push short-term interest rates up at a gradual pace, but the speed of expected rate hikes will be dictated by economic events, a top Fed official said on Thursday.

"Economic developments over the next year are reasonably likely to be consistent with a gradual adjustment of policy," Federal Reserve Board Governor Ben Bernanke said in remarks prepared for a luncheon sponsored by the San Francisco Federal Reserve Bank and the University of Washington.

"As we look ahead, core inflation appears likely to remain in the zone of price stability during the remainder of 2004 and into 2005," he said.

After their last interest-rate meeting on May 4, Fed officials said they thought the central bank would be able to move rates up "at a pace that is likely to be measured."

Bernanke said that language represented "a forecast about the future evolution of policy, not an unconditional commitment."

"Although I expect policy to follow the usual gradualist pattern, the pace of tightening will of necessity respond to evolving economic conditions, particularly the strength of the ongoing recovery in the labor market and developments on the inflation front," he said.

Financial markets, hoping for clues on the direction of Fed interest-rate policy, had eagerly awaited Bernanke's speech.