Donald Lambro

WASHINGTON -- Federal Reserve Board Chairman Ben Bernanke has reassured market observers and investors that the economic expansion is still right on track this year. But he dodged the all-important question about whether the Fed will continue to raise interest rates.

In his long-awaited debut before a congressional committee in his new role as Fed chairman, Bernanke delivered the pivotal economic message the White House wanted to hear most: that the Bush economy is not only continuing to show strength, but that it has "staying power."

Wall Street's reaction to that news was less than enthusiastic. The bears had heard this before and most doubted that Bernanke's crystal ball could accurately look that far into the future. The Dow rose a timid 30 points after his testimony.

He answered many questions from members of the House Financial Services Committee, but the question of whether he'll continue former Fed chairman Alan Greenspan's inflation-fighting rise in interest rates was not one of them.

Bernanke was supposed to bring more transparency and clarity to the Fed's explanations, but his answer to the interest-rate question was nearly as opaque as Greenspan's famously long-winded, circuitous responses.

When Greenspan was asked last June about where interest rates were headed, he answered this way:

"(W)e probably will know it when we are there, because we will observe a certain degree of balance which we had not perceived before, which would suggest to us that we're somewhere very close to where the rate is."

When Bernanke was asked about future interest rates, he replied, "I can't comment directly on short-term interest rates."

That terse but direct nonresponse was perhaps a refreshing change from Greenspan's famously impenetrable language. Still, it left the financial markets worried that they could be facing several more interest-rate hikes, which some fear would short-circuit the expansion in an election year.

While it's true that the economy was sending all the right growth signals over the past month in almost-weekly government reports that showed job creation, retail sales and factory production were up, that didn't necessarily translate into excessive inflationary pressures that the Fed fears.

Let's not forget that the gross domestic product, which measures the economy's growth rate, rose by a tepid 1.1 percent in the fourth quarter. That is hardly a sign of an overheated economy getting ready to unleash a burst of runaway inflation.

Inflation as measured by the personal consumption expenditure price index, excluding energy and food, inched up 2.9 percent in the third quarter, a relatively modest rise in an expansionary climate.


Donald Lambro

Donald Lambro is chief political correspondent for The Washington Times.