WASHINGTON (Thomson Financial) - Since its two interest rate cuts, the Federal Reserve believes 'the risks in terms of what could go wrong in both directions are more balanced,' Fed Chairman Ben Bernanke told Congress today.
In that situation, where the downside risks to growth roughly balance the upside risks for inflation, 'we will be very dependent on the data', will 'continually update our views' and will respond as the risks change, he said.
While inflation expectations 'remain reasonably stabilized,' there are inflation risks from rising oil prices and the falling dollar, and 'those are risks that we cannot ignore.'
The economy has withstood more expensive oil so far, but 'we have to be very vigilant to make sure higher oil prices don't translate into broader inflation.
More expensive oil can have not just an inflationary effect but also a contractionary effect on consumer spending.
The economic data since the October 31 Fed meeting 'have not really changed our view' that the economic spillover effects from housing and the financial markets have been limited, Bernanke said, and the broader economy has been 'remarkably resilient.'
Going forward, 'we are not dogmatic,' Bernanke said. The Fed will 'follow the data' and watch what happens to the financial markets to see how the risks to the economy might change. dennis.moore@thomson.com dem/wash/rw COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.