RENEE MONTAGNE, Host:
Federal Reserve Chairman Ben Bernanke is testifying before Congress this week. He's delivering the Fed's semi-annual report about the state of the economy. We think that he is optimistic, but always when a Fed chairman speaks it helps to find an interpreter to translate his words into English.
STEVE INSKEEP, Host:
David, welcome back.
DAVID WESSEL: Thank you. Good morning.
INSKEEP: Okay, so what are the reasons for Bernanke's cautious optimism, if in fact that's what it is?
WESSEL: No, I think that's what it is. He's basically saying the economy is better but not good. He pointed out that, for instance, the bad news is we lost nearly nine million private sector jobs during the recession, and we've only got a million of them back, but we are slowly adding jobs. So although he says until we see stronger job growth we can't consider the recovery, in his words, to be truly established, the Fed is now predicting that we'll see unemployment down below eight percent by the end of next year.
INSKEEP: By the end of next year, 2012.
WESSEL: That's right.
INSKEEP: So still a very slow decline in unemployment here.
WESSEL: Absolutely. So he's pleased that the economy is growing, but he says it's not growing fast enough.
INSKEEP: Now, at the same time a lot of people are worried about whether the crisis in Libya, which is sparking an increase in oil prices, which were already going up, could have an effect on the economy. What's Bernanke think?
WESSEL: Right. That's probably the biggest change in the world economy since he was last grilled by Congress. And what he basically says is that he expects at worst a modest and temporary increase in inflation. Higher gasoline prices, he says, can reduce the amount of money that consumers have to spend on other things. That's bad for the economy. But they can also raise people's expectations of inflation, which is an early warning sign of inflation. So far, though, he sounds pretty calm. He says that the rise in oil prices we've seen so far don't pose what he called a significant risk to their forecast that inflation is actually so low that it's too for their own comfort.
INSKEEP: Is there anything in what you just said that would suggest that the Fed might have to be thinking about raising interest rates to restrain inflation?
WESSEL: No. The Fed is in this kind of watchful waiting mode. They keep saying that, you know, we're not on autopilot, we're not on autopilot, but we don't expect anything in monetary policy to change for months and months and months. He says they won't raise interest rates and they won't start selling some of this huge hoard of securities that they have until they're convinced that the recovery is what he called self-sustaining and inflation has risen closer to their long-term goal of about two percent.
INSKEEP: David, for some reason I'm thinking of a U.S. diplomat more than a century ago who said that the job of a diplomat sometimes in complicated situations was the most stubborn inaction. I wonder if that's what Bernanke is holding to now - stubborn inaction.
WESSEL: No, I think that's right. And I think what you saw in the testimony yesterday is a number of members of the Senate Banking Committee are kind of incredulous, and they said surely you're going to start fighting inflation, aren't you, Mr. Bernanke? After all, oil prices are up. And he's telling them, no, I'm not going to let inflation get out of control. But it isn't anywhere near that yet, so I'm staying on the sidelines.
INSKEEP: You're talking about questioning before the Senate. How might things be different as he goes before the House of Representatives?
WESSEL: Well, the House committee is much bigger and it has a much more diverse set of critics of the Fed, from Ron Paul, the libertarian from Texas on the right, and Barney Frank, the liberal from Massachusetts on the left. So he'll give the same speech to them, but then the question and answering, which is the real theater of a Congressional hearing, is likely to be somewhat more lively and at times bizarre. But at the moment he seems to be able to withstand this thing and enjoy like defending what the Fed's doing because the economy is getting better and that's always easier for a Fed chairman.
INSKEEP: Well, David, enjoy the testimony today.
(SOUNDBITE OF LAUGHTER)
WESSEL: Thank you.
INSKEEP: David Wessel is economics editor of The Wall Street Journal and a regular guest here Transcript provided by NPR, Copyright NPR.