labels: Economy - general
Bernanke signals end of rate cuts, talks tough on inflation causing dollar surge news
10 June 2008

Federal Reserve chairman Ben Bernanke talked tough on inflation today, signalling that the central bank is done lowering interest rates. As a result of this strident posture, the US dollar moved up strongly against other currencies and spurred investors to bet that officials will raise rates later this year and sent two-year note yields to their highest level since January.

Bernanke played down the biggest jump in the unemployment rate in 22 years in May and said the risk of a ''substantial downturn'' receded in the past month. Policy makers will need to pay ''close attention'' to make sure the increase in commodity costs doesn't pass through to broader consumer prices, he said in a speech to a Boston Fed conference in Chatham, Massachusetts late yesterday.

Central bankers ''will strongly resist an erosion of longer- term inflation expectations,'' Bernanke said. Any public anticipation of accelerating price gains ''would be destabilizing for growth.'' This marks a change in the Fed's focus from growth to inflation.

He was not very pessimistic about the current situation, remarking, ''The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.'' While risks to growth were still to the ''downside,'' he added that federal tax rebates, past rate cuts and record exports should underpin the expansion.

The euro traded lower against the dollar at $1.5497, down from $1.5640 in late US dealings Monday. The dollar was up more than half a yen to 106.88 Japanese yen and changed hands at 1.0387 Swiss francs, up from around 1.0333 francs.

Today morning, the euro was at $1.5528 from $1.5627 late Monday, while the dollar was at 106.79 yen from 106.29 yen. The UK pound was at $1.9566 from $1.9726, while the dollar was at 1.0375 Swiss francs from 1.0286 francs.

The dollar had previously received a lift from US Treasury Secretary Henry Paulson on Monday, who said in a television interview that he would never completely rule out foreign-exchange intervention.


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Bernanke signals end of rate cuts, talks tough on inflation causing dollar surge