Bernanke Hints at End of Interest Rate Hikes

Investors have been watching U.S. economic numbers closely, trying to see what the likelihood is of the Federal Reserve Bank hiking interest rates again when it convenes again in August.

Consumer price inflation figures released this morning were higher than expected, and pushed the likelihood of yet another Fed hike of interest rates to 90 percent, according to analysts. But Fed chief Ben Bernanke (pictured) soothed concerns of financial markets somewhat with his testimony before Congress yesterday.

“Anticipated moderation in economic growth now seems to be under way, the chairman said. “We think inflation is going to moderate.”

By the time he was done speaking, economists were less likely that the hikes would continue much longer, believing that the Fed is wary of raising borrowing costs too high, in spite of its crusade against inflation.

The two-year campaign of interest-rate increases has resulted in 17 consecutive quarter-point hikes and a gradual increase in the borrowing costs of Florida home loans. The average rates on fixed-rate, 30-year home loans have leveled off a bit in recent weeks, but are more than a full percentage point higher than a year ago at this time.

Wall Street rallied after Bernanke’s testimony before the Senate Banking Committee, with the Dow Jones industrial average picking up 212.19 to end the day at 11,011.42 — 1.96 percent gain, the largest gain by percentage since April 2002. How the nation’s stagnant, overvalued housing market responds to the news remains to be seen.

Bernanke cautioned, however, that inflation remains a risk that would be watched closely and could prompt more interest rate hikes. Currently, consumer confidence is strong, and Bernanke cited future projections that energy prices, after a sharp rise, would likely be flat in the near term. He expressed hope that things would not get out of line, and emphasized that Fed policy is guided more by long-range expectations than recent monthly data.