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Advance Look at Fed Chairman Ben Bernanke Speech

Tuesday, 28 Nov 2006 | 1:14 PM ET

Markets are looking to the speech by Fed Chairman Ben Bernanke today for clues about the direction of the U.S. economy.

Following are some bullet points from his speech published by the Associated Press and discussed on CNBC. There's plenty here to chew on.

- Overall inflation has slowed significantly since earlier this year.

- Core inflation nevertheless remains uncomfortably high.

- Looking forward, core inflation seems likely to moderate gradually over the
next year or so.

- There are substantial uncertainties about the inflation forecast. In the case of inflation, the risks to the forecast seem primarily to the upside.

- One factor that we are watching carefully is labor costs... although the available indicators give somewhat different signals, it seems clear that labor have been rising more quickly of late.

- What implications does the pickup in labor costs have for price inflation? One possible outcome is that increases in labor costs will largely be absorbed by a narrowing of firms' profit margins and not be passed on to consumers in the form of higher prices.

- If higher labor costs are mostly absorbed by firms and not passed on, then workers will see the gains in their nominal compensation per hour of work translated into greater real compensation per hour; in the process, workers would capture a greater share of the fruits of the high rate of productivity growth seen in recent years.

- The more worrisome possibility is that tight product markets might allow firms to pass all or part of their higher labor costs through to prices, adding to inflation pressures.

- We will continue to monitor the inflation situation closely. If further policy action against inflation will be required--it will depend on the incoming data and in particular on how these data affect the FOMC's (Federal Open Market Committee) medium-term forecasts of both inflation and output growth.

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Kenny Polcari