Bernanke Says Fed Won’t Support Raising 2% Inflation Goal

Federal Reserve Chairman Ben S. Bernanke said the central bank won’t raise its inflation target to 3 percent, a move he said may unsettle consumers, destabilize markets and undermine confidence in the Fed.

The Federal Open Market Committee couldn’t boost its 2 percent target for price increases “without losing control of the inflation process,” Bernanke said to the House Financial Services Committee today in Washington in semi-annual testimony to Congress. Policy makers wouldn’t support cutting the goal to 1 percent because that would risk deflation, Bernanke said.

“Both are concerns, because 3 percent of course means that we’re moving toward a more inflationary situation but 1 percent is closer to the deflation range which is also not healthy for the economy,” Bernanke said.

“I’m very skeptical that it would increase confidence among businesses and households and increase economic activity,” the Fed chairman said.

Setting the inflation goal higher “would create a lot of problems in financial markets,” partly by prompting speculation the Fed would increase the inflation target yet again, he said.

To contact the reporter on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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July 18 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke testifies about Fed policy and the U.S. economy before the House Financial Services Committee in Washington. Bernanke said U.S. central bankers are capable of removing record stimulus from the financial system and raising interest rates when needed to avoid triggering inflation. (This is the first part of the hearing. Source: Bloomberg)