Bernanke says globalization may boost U.S. inflation

By Jim Christie

PALO ALTO, California (Reuters) - Global factors may on balance have boosted U.S. inflation, but globalization has not affected the ability of the Federal Reserve to influence U.S. financial conditions, Fed Chairman Ben Bernanke said on Friday.

"When the offsetting effects of globalization on the prices of manufactured imports and on energy and commodity prices are considered together, there seems to be little basis for concluding that globalization overall has significantly reduced inflation in the United States in recent years; indeed the opposite may be true," he said in a speech at Stanford University.

Bernanke did not speak about the outlook for interest rates, economic growth or inflation during his remarks.

Nor did the central bank chairman talk about declines in U.S. stocks, which had their worst week in four years, in his text.

However, Bernanke provided a subtle reminder the Fed is not without tools to influence markets if necessary.

"Empirical studies also find that U.S. monetary policy actions retain a powerful effect on domestic stock prices," he said.

OVERSTATED INFLATION

Bernanke also told his audience the Fed agrees with studies that say government data overstates inflation data.

"I still think that there's still some overstatement, and Federal Reserve estimates are, depending on the indicator, somewhere between half a percent and a percentage point of overstatement of the inflation rate," he said in response to questions.

The Fed looks closely at the personal consumption expenditure price index to gauge inflation because it allows for the possibility that people purchase different goods as prices rise, he said.

The central bank chief said the Fed finds it difficult to pin down a fixed number for any natural rate of unemployment.

"There are a couple of problems that have emerged with using a fixed number like that for analyzing the macro-economy," he said.

The relationship between slack in the economy and lower inflation is "clearly lower" than it used to be, Bernanke said.

FED HAS INFLUENCE DESPITE GLOBALIZATION

Bernanke said that globalization has not "materially affected the ability" of the Fed to influence U.S. financial conditions, "nor has it led to significant changes in the process which determines the U.S. inflation rate."