Ben Bernanke's Speech At Jackson Hole: The Fed is likely to stay on hold through 2008

Federal Reserve Chairman Ben Bernanke, speaking today at the Kansas City Federal Reserve Bank's yearly symposium at Jackson Hole Wyoming, said that the recent decline in commodity prices and stability of the dollar were "encouraging." The Fed's policy of maintaining "a relatively low target for the federal funds rate despite an increase in inflationary pressures," was based on the assumption that "prices of oil and other commodities would ultimately stabilize, in part as the result of slowing global growth." While Mr. Bernanke sees a "pace of growth that is likely to fall short of potential for a time," this should "lead inflation to moderate later this year and next year" due in part to "ncreased slack in resource utilization."

Still, the inflation outlook remains "highly uncertain'' and the Fed "is committed to achieving medium-term price stability and will act as necessary to obtain that objective,'' he said.

"The implication for currency markets is fairly plain," said Matthew Carniol, chief currency strategist at TheLFB-Forex.com, "the Fed is expecting to see further declines in commodities as well as stabilization in the dollar, and is depending on a continued weakening of the job market and overall economy to help bring inflation rates down. The corollary here is that if the economy does not slow as projected, commodity prices and therefore inflation will probably not moderate. In that scenario, we would be likely to see the FOMC raise borrowing costs. Taken together, it is unlikely to see a rate increase this year."

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

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