Bernanke Confirms Fed Might Raise Inflation Target [to Justify More Printing]

File under: expect the money printing to continue. Bernanke is giving the Fed an excuse to continue with its monetary expansionist profligacy against the backdrop of rising prices, which is smacking the Fed in the face. During the Bernanke press conference after the November 3, 2011 FOMC meeting, we Tweeted:

@zerohedge Did Ben just suggest the Fed is considering raising its inflation target?

This was in response to a curious phrasing by the Chairman. From the transcript:

ROBIN HARDING. Robin Harding from the Financial Times. Mr. Chairman, could you explain the menu of options that the Committee has for improving its communication about when it might raise interest rates and what the conditions are in which it might do that? For example, might it makes sense for the Fed to publish a forecast of its own future interest rates, and what’s the advantages and disadvantages of that? Thank you.

CHAIRMAN BERNANKE. Well, again, as I noted in my opening remarks, no decisions have been made, so I want to be very clear that no final—you know, there is no final outcome here in this discussion. But clearly, there’s a range of things that we can do. We can provide more information about our objectives, for example. We could provide information about where we want inflation to be in the long term, for example. We can also provide information about the future path of interest rates, which we’ve done to some extent via our “mid-2013” language in the statement. An alternative approach, which Charlie Evans and others have suggested, is to tie that to economic conditions and to provide more information about under what circumstances we would raise rates. That is certainly something that we have discussed and I think is an interesting alternative. There’s a lot of interest in using the survey of economic projections in constructive ways as we have up until now to provide information to the public about our plans. And in particular, using the SEP as a way of giving information about our future policy decisions is something that’s on the table. There’s no decision made about that, but that’s one direction that we might find productive.

Today, at a town hall meeting with soldiers and their families, Bernanke again said:

We pursue those two important goals by influencing the level of interest rates and other financial conditions. My colleagues and I on the Federal Reserve's monetary policymaking committee equate price stability with inflation being at 2 percent or a little less. That rate is low enough that people and businesses can make financial decisions without having to worry too much about rising costs, but high enough to keep the economy away from deflation--falling wages and prices--which is both a cause and a symptom of an extremely weak economy. Although spikes in oil and food prices, and other transitory factors, pushed inflation up earlier this year, inflation appears to be moderating, and we expect, based on the best information that we have today, that it will remain reasonably close to our objective of 2 percent or a bit less for the foreseeable future.

In the longer term, monetary policy is the main determinant of inflation, and so Federal Reserve policymakers have considerable latitude to choose our longer-term inflation goal. In contrast, "maximum employment" depends on many factors outside of the Federal Reserve's control, such as the skills of the workforce and the pace of technological innovation. Right now, my colleagues on the Fed's policymaking committee estimate that the U.S. economy could sustain an unemployment rate of somewhere between 5 and 6 percent without generating a buildup of inflation pressures. But, regardless of whether the sustainable rate is 5 or 6 percent, with unemployment currently at 9 percent, our economy is certainly falling far short of maximum employment. That high unemployment rate is why the Federal Reserve is focusing its monetary policy at strengthening the recovery and job creation, including keeping short-term interest rates near zero and longer-term rates, such as mortgage rates, at the lowest levels in decades. Keeping borrowing costs very low supports consumer purchases of houses, cars, and other goods and services, as well as business investment in new equipment, software, and facilities. Over time, greater demand on the part of households and businesses leads to increased economic activity and employment.

Yes, in the topsy turvy world of Keynesian economics, 9% unemployment must be remedied by more money printing to make consumer products more expensive. Unfortunately, wages of the poorest are always the last to rise, since inflation is actually a subsidy to those who get the money first.