NYT: Fed Chief Sees Need to Include Global Factors in Setting Rates

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Fed Chief Sees Need to Include Global Factors in Setting Rates
By EDUARDO PORTER
Published: March 20, 2006

Ben S. Bernanke, the newly installed Federal Reserve chairman, suggested this evening that the central bank would need to pay more attention to global financial conditions in setting interest rates, moving beyond its usual focus on domestic economic forces.

In his prepared remarks to the Economic Club of New York, Mr. Bernanke told the group gathered at the Grand Hyatt Hotel in midtown Manhattan that to understand the reasons behind movements in American bond yields, "an explanation less centered on the United States might be required."

In only his third speech since being sworn in as Fed chairman last month, Mr. Bernanke was also skeptical about the argument that the economy will slow in the near future.

Mr. Bernanke built his speech around one of the most pressing puzzles in financial markets today: Why do long-term bond yields remain so low despite steadily rising short-term interest rates?

Historically, long-term rates have fallen because investors were anticipating a slowdown in the economy or a significant decline in inflationary pressures. But Mr. Bernanke argued that other factors —including a worldwide imbalance between abundant savings and less robust investment — may be a more powerful explanation for the current phenomenon....

http://www.nytimes.com/2006/03/20/business/20cnd-fed.html