WASHINGTON (AFX) - Stable prices of goods and services is the cornerstone of good economic performance, said new Fed chief Ben Bernanke on Friday.
Returning to Princeton University for his first address, Bernanke trumpeted Wall Street's favorite topic: stable prices.
Until the 1980s, there was a widely held view that the United States would have to sacrifice employment gains if it wanted to keep inflation low.
But over the last two decades, Bernanke said, a new consensus has emerged among economists and central bankers that price stability actually helps employment growth.
'When prices are stable, people can hold money for transactions and other purposes without having to worry that inflation will eat away at the real value of their money balances,' Bernanke said.
'Equally important, stable prices allow people to rely on the dollar as a measure of value when making long-term contracts, engaging in long-term planning or lending for long periods,' Bernanke said.
Stable prices foster low inflation expectations, which have kept inflation from accelerating in the past year even though the price of oil has risen dramatically, the new Fed chief said.
'The public has shown confidence that any increases in inflation will be temporary and that, in the long run, inflation will remain low,' Bernanke said.
'As a result, the Fed has not had to raise interest rates sharply as it did in the 1970s but instead has been able to pursue a policy that is more gradual and predictable,' he said. This story was supplied by MarketWatch. For further information see www.marketwatch.com.