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He mentioned three criteria, which he holds as important.

To Fed watchers around the world, Bernanke tipped three important cards.

Firstly, Bernanke mentioned that energy and food prices had risen significantly and, if they stayed up, could influence underlying core inflation, in the longer-term. That was the reason the Fed remains "concerned about underlying inflation."

Interestingly, while he felt that energy prices may come down, he gave no such hope over food prices. In fact, Bloomberg reported that Hershey’s profits were off by 96 percent, due to severance costs and dairy costs.

Secondly, Bernanke mentioned the Fed’s focus on unemployment.

Most interestingly, he commented that the widely held figure of "full employment" should no longer be seen as a fixed percentage as employment, including job searching over the internet, was changing.

[Editor's Note: Bernanke Reveals Fiscal Crisis Ahead.]

So Fed watching economists, using a fixed unemployment target level as an indicator to justify a movement in the Fed rate, should take careful note.

Next, Bernanke touched on his "inflation expectations" theory, as a justification of keeping a firm hand on inflation. He re-emphasized that the credibility of the Fed in the battle against inflation was key.

In summary, Bernanke offered little hope of an imminent reduction in rates.

Bernanke also gave an interesting ball-park figure of the size of the fall-out in the sub-prime bank lending problem as between $50 million and $100 million.

As our readers know, we feel the figure will prove to be larger, but, unlike us, Bernanke has to achieve the delicate balance between credibility and avoiding a panic.

On housing, Bernanke cited the "builders’ inventory overhang," as he appeared to agree with today’s Economist item which was headlined, "Housing Slump to Stay Through 2007."

Editor's Notes:

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