Robert Novak

WASHINGTON, D.C. -- Speculation that the Federal Reserve is about to begin inflation-fighting interest rate increases appears to be dead wrong. Fed Chairman Ben S. Bernanke is worried more about runaway oil prices contracting the global economy than inflating it with a wage-cost spiral. According to sources close to him, America's leading central bank has no plans for a raise.

That conflicts with the recent announcement that the European Central Bank would raise interest rates to combat what it considers a tide of inflation presaged by rising food and oil prices. Because the Europeans themselves are divided about what to do, the promised rate hike next month is described as modest -- no more than a quarter of a percentage point.

Nevertheless, the prospect of the world's two most influential central banks going in opposite directions reflects an unusual difference in outlook on the global economy by Bernanke and Jeane-Claude Trichet, president of the European Central Bank. Like the Wizard of Oz, Alan Greenspan and other central bankers were hidden behind a non-transparent curtain to evoke an aura of omniscience. The curtain has been pulled away, as Bernanke and Trichet are seen as mere mortals trying to cope with a complicated and contradictory economic climate.

Bernanke has recently poured out ammunition for Fed-watchers seeking to predict the central bank's course. On June 3, in a speech delivered via satellite to an international monetary conference in Barcelona, Spain, he confirmed speculation that inflationary dangers had ended the Federal Reserve's long series of interest rate cuts. Bernanke asserted then that current rates probably would be high enough without raising them.

But six days later, in addressing a conference sponsored by the Federal Reserve Bank of Boston, Bernanke took a firmer position in reaction to the soaring price of oil. By promising that the Fed would "strongly resist" inflationary expectations, he generated talk of a rate increase -- probably later this year.

Bernanke's strong language followed by four days the surprise announcement by Trichet that the European Central Bank's governing council, meeting in Frankfurt, had agreed on a subsequent rate increase after heated debate. That constituted a major internal victory for the anti-inflation hawks in Europe led by Axel Weber, president of the German Bundesbank.

Robert Novak

Robert Novak (1931-2009) was a syndicated columnist and editor of the Evans-Novak Political Report.

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