Ben Bernanke, nominated as chairman of the Federal Reserve System board of governors by President George W. Bush, today told lawmakers that monetary policy is "most effective when it is as coherent, consistent and predictable as possible" and that this would be best accomplished by the central bank stating an explicit goal for inflation, or range of inflation rates consistent with long-term price stability. Mr. Bernanke said setting a long-term inflation goal would require study, and he would do so only with the Federal Reserve Board's consensus.
In response to questions from the Senate Banking, Housing and Urban Affairs Committee, he said that outside of the energy sector, core inflation is currently very low. He added that "inflation expectations remain very anchored," and as long as they remain low, the economy will be able to better absorb energy shocks than 30 years ago.
He also said the nation's current account deficit needs to come down over a period of time. And he suggested that the Federal Reserve Board consider examining other alternatives to the consumer price index as a measure of inflation because of the index's tendency to overstate inflation.