Bernanke defends Fed small bank supervision role

The Chairman of the US Federal Reserve Ben Bernarke has said the central bank is best qualified to oversee the largest financial institutions and should retain its oversight of smaller banks as well. The Fed’s “wide range of expertise” makes it “uniquely suited to supervise large, complex financial organizations and to address both safety and soundness risks and risks to the stability of the financial system as a whole,” Bernanke said in testimony yesterday to the House Financial Services Committee. The hearing is assessing the merits of proposed legislation to overhaul financial regulation in order to prevent a repeat of the crisis that prompted taxpayer-funded bailouts of firms including CitiGroup Inc and American International Group Inc.

Bernanke and regional Fed bank presidents are opposing efforts by Congress to remove much of the central bank’s supervisory role, saying such authority complements monetary policy. Bernanke said the Fed’s role as a supervisor of smaller banks “provides useful information about the economy and financial conditions throughout the nation.”

Wholesale prices in the US plunged in February by the largest amount in seven months as a large drop in energy prices offset higher food costs. According to figures released by the Labor Department yesterday wholesale inflation dropped 0.6% in February, much larger than the 0.2% decline economists had expected. Excluding food and energy, prices edged up a slight 0.1%, in line with expectations.

The deep recession and weak economic rebound are keeping inflation at bay and giving the Federal Reserve leeway to maintain record low interest rates in an effort to build momentum towards stronger economic growth. While overall wholesale prices have risen 4.4% over the past 12 months, core inflation, which excludes energy and food, has risen by a much more modest 1% during the past year. Updated monthly core CPI data is due out later today. As food and energy prices which are quite volatile are removed from the core figure it a much better gauge of overall inflation and a better way to judge the overall change in the price of goods and services purchased by consumers. The figure is expected to come out at 0.1%, from -0.1% last month.

Paul Dales, an economist at Capital Economics, said much of the downward pressure on prices stemming from the nation's steep recession has yet to be felt. For that reason, Dales said the Fed will be able to keep interest rates low for many more months.

Other releases due in the US today are the unemployment figures showing the number of people who filed for unemployment assistance for the first time in the past week and the Philadelphia Manufacturing Index. Unemployment figures are expected to be relatively unchanged from the previous figure 456k.