Do More With Reuters
Partner Services

UPDATE 3-Ex-Fed chief Volcker sees 70's-style inflation risks

Thu May 15, 2008 12:08am IST
 
Email | Print | | Single Page
[-] Text [+]

(Adds background, quotes from Bush administration, Sen. Charles Schumer)

By Joanne Morrison

WASHINGTON, May 14 (Reuters) - Former U.S. Federal Reserve Chairman Paul Volcker warned on Wednesday the United States could face a 1970s-style period of skyrocketing inflation if investors lose confidence in the buying power of the U.S. dollar.

"If there is a real loss of confidence in the dollar, then I think we are in trouble. That is something that has to be watched," Volcker told the congressional Joint Economic Committee.

The former Fed chief who championed the battle against double-digit inflation in the 1970s by raising interest rates sharply, warned that without careful focus on the declining dollar and inflation, the U.S. could face similar, or even worse, inflation pressures.

"That has to be very much in the forefront of our thinking, without that, we are back to the inflation of the 1970s or worse," Volcker said, questioning the relevance of measuring inflation by stripping away volatile food and energy prices.

His comments came after oil's recent rise to record highs, which has boosted gasoline prices sharply for consumers already dealing with a slowing economy.

On Wednesday, the government reported that inflation only grew by a moderate 0.2 percent during April and an even more tame 0.1 percent when excluding volatile food and energy prices. Volcker raised some doubts about the way the government measured inflation.

"It doesn't feel quite right," Volcker said of considering the so-called core rate, particularly as food and energy prices have been rising for years.  Continued...

special coverage

Budget 2009
Budget 2009

The government presents the budget for the full fiscal year 2009/10 on July 6.  Full Coverage 

Market Update

  • IndiaIndia
  • USUS
  • UKUK
  • Asia
  • Most Actives

SHOWCASE

Photo
Is the budget over-rated for personal finance?

Expectations are high given the outcome in the general elections.  Commentary 

 
Nilekani: Infosys' loss or govt’s gain?
Nilekani: Infosys' loss or govt’s gain?

Nandan Nilekani has resigned from the Infosys board to join the government.  Commentary | Slideshow 

 
Launched

Tata Motors announced the launch of Jaguar and Land Rover vehicles in India.  Slideshow | Video 

 
Satyam
The new Satyam

Stay updated with the developments at Satyam.  Full Coverage 

 
M&A Review
M&A Review

A review of mergers and acquisitions.  Full Coverage 

 
Financial Turmoil Timeline
Financial Turmoil Timeline

A round-up of measures taken by the U.S Federal Reserve since June 2007 to tackle the financial crisis.  Full Coverage