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QUEST MEANS BUSINESS

Bernanke Press Conference

Aired April 27, 2011 - 14:00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: It is a first for the Fed. Ben Bernanke will speak live in this hour as interest rates stick at record lows.

Gaming and shaming, first on PlayStation, not the Xbox could be risking your privacy.

And-

(BEGIN VIDEO CLIP)

DAVID CAMERON, PRIME MINISTER OF BRITAIN: When you see the television cameras, the temporary studios, the tourists that are here, the excitement there is, I believe actually this is going to be a fantastic advertisement for Britain.

(END VIDEO CLIP)

QUEST: The British prime minister tells me why love, not austerity, is in the air.

I'm Richard Quest. I mean business.

Good evening to you.

Tonight we are waiting for Ben Bernanke begin a press conference, which is sure to make history whatever he says. It is the first time the chairman of the U.S. Fed has faced journalists at a news conference, in this fashion, following on from an interest rate meeting.

That is the room that they are waiting for. Pencils sharpened, no doubt. No one will be vulgar enough, I suspect, to say when are you going to raise interest rates. But they will ask him when are you going to raise interest rates in a 1,001 different ways. Today at its meeting, the FOMC, the Federal Open Markets Committee, say interest rates will stay exceptionally low for an extended period. Now that, of course, is the key phrase. Rates remain close to zero where they have been since December 2008.

The Fed's QE program, quantitative easing, is due to stop on plan at the end of June. But now everyone is waiting for an indication of what will happen on QE and on rates. Ben Bernanke normally sticks to a script, in the most carefully measured language. The words will move the market, so whatever he says, the nuances over the next hour, will be followed very tightly and closely.

Todd Benjamin is with me here in London.

TODD BENJAMIN, CNN CONTRIBUTOR: Good evening, Richard.

QUEST: Good evening to you.

And from the University of Maryland we have Peter Morici; Professor Peter Morici who joins us as well to talk about this.

We begin with you, Todd.

He's not going to say, I'm going to raise rates a month, next Thursday.

BENJAMIN: Oh, absolutely not. I mean, the Fed has made if very clear that they are in no hurry to raise rates. You know, they say the pace of the recovery is moderate. They acknowledge there are still several problems in the economy in terms of, you know, high unemployment. Housing is still a sore spot for the economy, despite the easing they've done. So, I think they will stick pretty much to the script.

I think most importantly they see inflation as transitory. And as a result of that, that signals that they are in no hurry to raise rates, despite some who feel they should be in more of a hurry.

QUEST: Peter, what do you think? What will you be listening out for, closely, when Bernanke starts speaking.

PETER MORICI, ECONOMICS PROFESSOR, UNIV. OF MARYLAND: We have heard some of it. His outlook on inflation, he is going to tell us it is transitory.

What I want to hear is what he is going to do if QE2 ends, which we do expect it to end. How concerned is he about mortgage rates going up, and then in turn, how will he handle his balance sheet? You know he has a lot of mortgage backed securities on the balance from bailing out the banks. And so far as they have been coming due, he's transferred that to Treasury securities. Is he going to give us any indication that that will continue. That will have a very positive effect on the markets and be very stabilizing for the housing market, if he stays in neutral so to speak, as opposed to, you know, going out and buying it as he is doing now.

BENJAMIN: Peter, let me interject here, Todd Benjamin.

What was interesting was when it was discussing a securities portfolio, it said it is, quote, "prepared to adjust those holdings as needed to best foster maximum employment and price stability."

How do you interpret that statement and what do you think they will do, you know, when they end this quantitative easing in June? Because at face value, one would think, OK, that's it. But that isn't it, because they are still going to have a lot of flexibility in terms of, you know, keeping money very easy.

MORICI: Well, they are not going to go out and buy more bonds. They are not going to add to their balance sheet. I interpret that statement as, not a statement. Because price stability versus maintaining employment. I guess I interpret that to mean that they will stay in neutral on their balance sheet. That they will not let it run down. That they will replace mortgage backed securities.

QUEST: Right, but hang on. Right. But, Peter, to remain neutral on the balance sheet-and let's face it this statement isn't the most elegantly phrased. I have to say, because although it talks about it will not continue QE and it will continue its purchases, to maintain neutrality, it doesn't say how far into the future. But you must assume, then, that they will reinvest those dividends.

MORICI: That's right. They are going to reinvest-

QUEST: Because otherwise it would tighten.

MORICI: Yes, they are going to reinvest what they have. That will still cause interest rates to rise, because they have been adding to their portfolio in recent months. So this will keep the portfolio constant as opposed to letting it run down. I expect that, to keep it neutral, to not let it run down, because he views inflation as a transitory problem. But he views the housing market as a somewhat permanent problem. There is no reason to believe that housing values, which have continued to fall, are going to turn around any time soon.

QUEST: All right. All right, Peter, but let's just pause for one second.

While I tell you, what does the Fed really mean and matter to most of us? When it is a policy lever it is hard to measure the outcome. If you own shares the Fed policy might have made them worth more. The S&P 500 has gained 25 percent since last August. That is when Ben Bernanke hinted that there would be more QE to come.

If you are looking for a job, loose monetary policy is meant to help. Partly by providing the cash to help companies create more and also pushing down interest rates. But unemployment remains high at 8.8 percent.

Many are feeling the pinch of rising fuel and food costs. The Fed ignores those categories in net price movement measures. What it concentrating one on is core inflation and that remains tame.

And if you are a homeowner Fed policy can make your mortgage cheaper. Low rates don't seem to be boosting the property market. Lending conditions are tighter than they were. Keeping lending low has weakened the dollar. Exports are cheaper, imports more expensive.

Todd Benjamin, this is the conundrum, isn't it? He talks about, in the statement, today, moderate growth. But this is moderate growth on the back of stimulus packages that are going to run out.

BENJAMIN: Absolutely. And I think the Fed has to be very frustrated. Peter, I'd like to get your thoughts on this as well. You know, because they poured a lot of money at this economy and they have done a good job in terms of keeping the economy from going deep, deep into the abyss. They have turned it around but what do they really have to show for it. You know, unemployment is still remains very high. And more importantly housing, despite those very low rates, remains very depressed because they don't control the lenders.

QUEST: Right, but isn't the point here that Todd is making and I (UNINTELLIGIBLE) I agree with him. Peter, there is not much more the Fed can do at the moment. The cake is baking, you just have to let it back.

MORICI: Absolutely. There really isn't much more they can do. And what Ben Bernanke can't talk about, but really should, is the constraints. That the administration imposes on him. You know they won't do much about the currency policy with regard to China and the trade deficit. Our energy policy is very dysfunctional. It leads to a lot of imports that we pay for that depress the economy. And so the stimulus spending wasn't spent very well. A lot of that money didn't generate a lot of jobs.

You know, the Fed can't do it all. And if the administration isn't going to do its part with sound fiscal and exchange rate policy, it is limited in its capacity.

QUEST: With that, another issue for another moment. And we'll get to it in the hour, as we move forward. But let's go to Alison Kosik who is at the New York Stock Exchange, for where Wall Street has digested the results of the meeting.

We are at 50 odd, on the Dow. What-I mean, is it just geeks like Todd, Peter, and me, who are waiting for this conference, this press conference?

ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: No, no, no, not just geeks like yourselves are watching this. We're watching it. Wall Street is watching it. Sure, I mean, this is historic. Think about it, when was the last time a Fed chief came out and had a news conference after a rate decision. You know, and we know that the main goal here is clarity and transparency. And all the jokes go around that, you know, Bernanke is as clear as mud.

But the fact is, he is going to come out and speak, and people are going to have an opportunity to ask him the questions that you were asking before, about inflation. About when, maybe, we'll see an interest rate change, which is unlikely in the near future.

But as what came out at 12:30, the policy statement, Wall Street took it as ho-hum at this point. I mean, you look at the numbers. We are modestly higher. Volume, though, is still very, very low; lots of investors still sitting out. I think, Richard, what you are seeing is investors waiting out to see what, if anything, Fed Chief Ben Bernanke will say at 2:15 Eastern Time, Richard.

QUEST: And the market as it stands at the moment? We had a good earnings season, not a brilliant earnings season. We had a lot of greens on the Q25. But it was hardly a barn burner. So, they must be worried that the ability for corporate earnings to resuscitate into the second part of this year, is maintained.

KOSIK: And sure that is a huge concern, but an even bigger concern, is how are these higher oil prices going to affect second quarter earnings. Sure, we are having a pretty good earnings season right now, but what is going to happen, you know, from here forward? Especially after QE2, after the Fed pulls the plug on QE2 in June. That is what Wall Street wants to know as well. And sure, everybody wants to see how these oil prices, these higher oil prices, are going to weigh on earnings in the second quarter, Richard. So, so sure that is a big concern here.

QUEST: Alison Kosik, at the New York Stock Exchange. Don't go too far away. We'll want to know if the market-if Bernanke speaks and the market tanks.

Todd, you have about a second or two, if you-because you are anxious?

BENJAMIN: No, Alison was talking about the impact higher oil prices on earnings.

QUEST: Right.

BENJAMIN: I mean, the thing that I really want to look at is, you know, the impact, 26 percent rise in gasoline prices so far this year, is going to have on consumers behavior and how that translates into earnings. That, I think, is the biggest worry. Not the worry about inflation, but the impact of those higher oil prices on consumer behavior.

QUEST: And that is, of course, mentioned in the Fed statement in terms of their worries about that.

Ben Bernanke is due to speak in just over two minutes. He speaks quite often, but he is never really-well, he has never answered questions from the media in quite this way. You can see the clock in Washington. We'll bring you that news conference, the questions, the analysis, and Todd's thoughts, as he blogs on-live, with me, here, in a moment.

(COMMERCIAL BREAK)

QUEST: The Chairman of the Fed Ben Bernanke is now holding his first press conference.

(BEGIN LIVE FEED, IN PROGRESS)

BEN BERNANKE, CHAIRMAN, U.S. FEDERAL RESERVE BOARD: I'll then turn next to the Federal Open Market Committee's quarterly economic projections, also being released today. And I'll place today's policy decision in the context of the committee's projections and the Federal Reserve's statutory mandate to foster maximum employment and price stability. Then I'll be glad to take your questions.

Throughout today's briefing my goal will be to reflect the consensus of the Committee, while taking note of the diversity of views, as appropriate. Of course, my remarks and my interpretations are my own responsibility.

In its policy statement released earlier today the Committee announced first that it is maintaining its existing policy of reinvesting principle payments from its securities holdings. And second, that it will complete its planned purchases of $600 billion of longer-term Treasury securities by the end of the current quarter.

Of course, going forward the Committee will regularly review the size and composition of its securities holdings in light of incoming information, and it is prepared to adjust those holdings as needed to meet the Federal Reserve's mandate.

The Committee made no change today in the target range of the federal funds rate, which remains at zero to .25 percent. The Committee continues to anticipate that-

(CROSS TALK)

QUEST: Ben Bernanke is basically going over the FOMC's statement and just reiterating what the decision and announcement was. It is obviously going to be some time before we get to the Q&A section, if he is going to do a massive reappraisal of the U.S. economy. But we'll listen.

BERNANKE: In conjunction with today's meetings FOMC participants submitted projections for economic growth, the unemployment rate, and the inflation rate for the years 2011 to 2013, and over the longer run. These projections are conditional on each participants individual assessment of the appropriate path of monetary policy needed to best promote the Committee's objectives. A table showing the projections has been distributed.

I'm going to focus today on the central tendency (ph) projections, which exclude the three highest and three lowest projections for each variable in each year.

I call your attention first, to the Committee's longer run projections which represent participant's assessments of the rates to which economic growth, unemployment and inflation will converge over time, under appropriate monetary policy and assuming no further shocks to the economy.

As the table shows, the longer run projections for output growth have a central tendency of 2.5 to 2.8 percent, the same as in the January survey. Longer run projections for the unemployment rate have a central tendency of 5.2 to 5.6 percent, somewhat narrower than in January.

These figures may be interpreted as participants current estimates of the economy's normal or trend rate of growth. And its normal unemployment rate over the longer run, respectively.

The economy's longer term rate of growth and unemployment are determined largely by non-monetary factors, such as the rate of growth of the labor force, and the speed of technological change.

QUEST: Todd Benjamin, Ben Bernanke seems that he is determined to sort of numb us into submission?

BENJAMIN: Well, look, he is the, you know, he is a Fed official. Let's give him the benefit of the doubt here. At least he is having a press conference. He is trying to be very transparent. It is very easy to follow what he is saying. But you know, he is laying the ground work and I think he is doing what he is supposed to do as a central banker. It is not the most exciting television, it is not going to win any Oscars.

But this is what he has to do. And, of course, what people are really waiting for is the Q&A. That is, I think, going to be the most interesting part of what follows.

QUEST: Peter, long-term growth, trends growth, 2.5, 2.8, for this year and next year. He is not changing the forecasts.

MORICI: That's right. And that is not a very optimistic forecast. You know, coming out of such a deep recession, and with such high unemployment, the economy is capable of growing at 4 or 5 percent a year. So, that we can get that unemployment rate down, pretty quickly. And the real prescient question here is why doesn't it grow more rapidly? What about America has changed? Why have we forgotten how to grow? Because this is even slower than the Bush years, which by the way, were not great years.

So that is the real issue here. And-

QUEST: Hang on, hang on. You know the answer to that, Peter. And the answer is because of the systemic damage that was done the economy, both the U.S. economy, the U.K. economy, by the depth and severity of the recession. This is a patient that is coming out of cancer, leukemia, and major trauma surgery, all at the same time.

MORICI: I think it is more than that. Because going into this financial crisis, there were problems emerging. For example, in the United States businesses carry an overhead, paying twice for health care what, say, the Germans do. Health care spending in Germany is about $4,000 per person. Whether you pay it through taxes, or insurance premiums, you have to pay. In the United States it is about $8,000 per person. That is an enormous disadvantage.

We have a big trade deficit. You and I have quarreled about why we have it, but we have it. No, no, but it is there, whether it is for the reasons you believe, or I believe, it is a drag on demand.

There is the energy policy. You know Americans really could produce about 10 million barrels a day for now and for a very long time. On the radio this weekend, I interviewed the former chairman of Shell Oil, Hofmeister. And he says, I can get it up to 10 million barrels a day and keep it there. Now, he is a bit of a booster, but it can be done. That is why we're not growing.

BENJAMIN: But on the other hand, Peter, you know, I mean, you also have technology, which leads into higher productivity. You know, businesses are very lean. They have restructured during this recession and they realize that, you know, with much more growth coming from overseas, that the need for that many domestic workers is not as compelling.

QUEST: OK. We'll-let's go back to-to Mr. Bernanke, and see if he is still going-well, he is still going strong.

BERNANKE: Still well above the central tendency of participants longer run projections for unemployment of 5.2 to 5.6 percent. The projected decline in the unemployment rate is relatively slow, largely because economic growth is projected to be only modestly above the trend growth rate of the economy.

On the inflation front, commodity prices have risen significantly recently, reflecting geopolitical developments and robust global demand, among other factors. Increases in commodity prices are in turn boosting overall consumer inflation. However, measures of underlying inflation, though having increased modestly in recent months remain subdued and longer term inflation expectations have remained stable. Consequently, the Committee expects the effects on inflation, of higher commodity prices to be transitory. As the increases in commodity prices moderate inflation should decline toward its underlying level.

Specifically participants' projections for inflation have a central tendency of 2.1 to 2.8 percent for this year. Noticeably higher than in the January projections, before declining to 1.2 to 2.0 percent in 2012, and then running at 1.4 to 2.0 percent in 2013, both about the same as in January.

The Committee's economic projections provide important context for understanding today's policy action as well as the Committee's general policy strategy. Monetary policy affects output and inflation with a lag, so current policy actions must be taken with an eye to the likely future course of the economy. Thus, the Committee's projections of the economy, not just current conditions alone, must guide its policy decisions. The lags with which monetary policy affects the economy also imply that the committee must focus on meeting its mandated objectives-

QUEST: We have a inflation forecast, Todd Benjamin, 2.1 to 2.8, this year, to 1.2 to 2.0 the next year.

BENJAMIN: 1.2 to 2. next year, and beyond 1.4, to-

QUEST: If those inflation targets are held then there really isn't any rush or reason to raise rates.

BENJAMIN: That is absolutely right. And that is what the Fed is betting on. They are betting that these higher commodity prices that we are seeing, be it oil, or in food, are transitory. Not everybody, even within the Fed, you know, some of the regional Fed heads disagree with the assessment. But nevertheless that is the case that they're making and they are sticking by their guns on this. And the biggest risk is that they get this wrong.

QUEST: Let's remind you where interest rates stand in terms of the rest of the world, at the moment. It is useful to just have an aid memoir. The ECB raised rates, their raised ECB rates are at 1.25 percent. The U.K. is at half a percentage point. And the general feeling is even notwithstanding today's GDP number, which was better than expected but still bad, or at least stability bad, negative. The rates will probably not now move until later in the year.

BENJAMIN: I think one of the-

QUEST: (UNINTELLIGIBLE) Australia, whoo, whoo.

BENJAMIN: Yes.

QUEST: This puts it into perspective because Australia rates are at 4.75 percent as a result of the very strong growth that they have seen. They didn't really suffer a recession.

BENJAMIN: You see, it is interesting. You know, one of the things that Peter was rightfully mentioning before was that we have strong overseas sales for U.S. companies. But one reason that they are strong, in terms of what to bring back, in terms of earnings, is because of currency. And I think that is helping them a lot. The weak dollar has been a huge boom for exports. And the Fed, I think, is acutely aware of this.

It would be interesting to get Peter's views on that.

QUEST: Huh-huh, before we get that, I just want to refer-while we are listening, this is rather appropriate. And, Peter Morici is still with us.

CNNMoney is reporting on the Web site that Wal-Mart core shoppers, paycheck to paycheck customers-Wal-Mart, this is, Peter Morici, are running out of money much faster than a year ago, due to rising gasoline prices. CEO Mike Duke is warning, we are seeing core consumers, he says, under a lot of pressure. There is no doubt that fuel prices are having an impact. Running out of money.

BENJAMIN: That is exactly why earlier I raised the whole issue about what is the impact going to be on the consumer, from these higher prices. That is the other big wildcard.

QUEST: Right, but inflation on CPI of 2 percent-Bernanke, beg your pardon, gentlemen, Bernanke is taking questions. We are going to go back to the chairman of the Fed.

QUESTION: Mr. Chairman, tomorrow we are going to get a pretty weak first quarter GDP number, your own projections for the year have been down graded in this meeting. First of all, what do you see as the causes of the weak growth to start the year, even with monetary easing, even with payroll tax cuts, and what is behind this weaker forecast for 2011 GDP.

BERNANKE: You are correct. We haven't seen the GDP number yet, but we are like most private sector forecasters are expecting a relatively weak number for the first quarter, maybe something a little under 2 percent. Most of the factors that account for the slower growth in the first quarter appear to us to be transitory. They include things like, for example, lower defense spending than was anticipated, which presumably will be made up in a later quarter. Weaker exports, given growth in the global economy we expect to see that pick up again. And other factors like weather and so on.

Now there are some factors there that may have a longer term implication. For example, construction, both residential and non- residential, was very weak the first quarter. And that may have some implications going forward. So, I would say that roughly that most of the slowdown in the first quarter is viewed by the Committee as being transitory. That being said, we have taken our forecast down just a bit, taking into account factors like weaker construction and possibly just a big less momentum in the economy.

QUESTION: Mr. Chairman, given what you know about the pace of the economy now, what is your best guess for how soon the Fed needs to begin to withdraw its extraordinary stimulus for the economy. And could you also say what is your working definition of what extended period means, from the purposes of the Fed statement?

QUEST: A polite way of saying when are interest rates going up.

(LAUGHTER)

BERNANKE: Well, currently, as the statement suggests we are in a moderate recovery. We will be looking very carefully first to see if that recovery is indeed sustainable, as we believe it is. And we'll also be looking very closely at the labor market. We have seen improvement in the labor market in the first quarter, relative to the later part of last year. But we would like to see continued improvement, more job creation going forward.

At the same time we're also looking very carefully at inflation, the other part of our mandate. As I've noted inflation, headline inflation, is at least temporarily higher, being driven by gasoline prices, and some other commodity prices. Our expectation is that inflation will come down and towards a more normal level. But we'll be watching that carefully and also watching inflation expectations, which are important that they remain well anchored if we are going to see inflation remain under good control.

So, to answer your question, I don't know exactly who long it will be before tightening process begins. It is going to depend, obviously, on the outlook and on those criteria, which I suggested. The extended period language is condition on exactly those same points. Extended period is conditioned on resource slack, on subdued inflation and on staple inflation expectations. Once those conditions are violated or we are moving away from those conditions, that will be the time that we need to being to tighten.

Extended period suggests that there would be a couple of meetings, probably, before action, but unfortunately, the reason we use this vaguer terminology is that we don't know, with certainty, how quickly response will be required. And, therefore, we will do our best to communicate changes in our view as -- but that will depend entirely on how the economy evolves.

UNIDENTIFIED MALE: He's evading the question there.

UNIDENTIFIED MALE: No, he's not evading the question at all. I think he's giving a very honest answer. We don't know how long.

(CROSSTALK)

UNIDENTIFIED MALE: There critics who say that Fed policy has driven down the value of the dollar and a lower value to the dollar reduces Americans' standard of living.

How do you respond to the criticism that essentially Fed policy has reduced Americans' standard of living?

BERNANKE: Thanks, Steve.

First, I should start by saying that the secretary of the Treasury, of course, is the spokesperson for U.S. policy on the dollar. And Secretary Geithner had some words yesterday.

Let me just add to what he said, first by saying that the Federal Reserve believes that a strong and stable dollar is both in American interests and in the interests of the global economy. There are many factors that cause the dollar to move up and down over the...

QUEST: Well, that's the boilerplate language used, a strong dollar in the interests of X, Y, Z, blah, blah, blah.

BERNANKE: We are doing two things.

First, we are trying to maintain low and stable inflation by our definition of price stability, by maintaining the purchasing value of the dollar, keeping inflation low. That's obviously good for the dollar.

The second thing we're trying to accomplish is to get a stronger recovery and to achieve maximum employment. And, again, a strong economy, growing, with -- attracting foreign capital is going to be good for the dollar.

So in our view, if we do what's needed to pursue our dual mandate of price stability and maximum employment, that will also generate fundamentals that will help the dollar in the -- in the medium-term.

(CROSSTALK)

UNIDENTIFIED MALE: I'm sorry (INAUDIBLE).

UNIDENTIFIED MALE: And it's been unsuccessful so far.

BERNANKE: Well, the dollar -- the dollar fluctuates. One factor, for example, that has caused fluctuations that have been quite extreme during the crisis has been the safe haven effect. So, for example, during the height of the crisis, in the fall of 2008, money flowed into the Treasury market and drove up tofu the dollar quite substantially, reflecting the fact that the U.S. capital markets are the deepest and most liquid in the world. And a lot of what you've seen over the last couple of years is just the unwinding of that, as the economy has strengthened and has -- and as uncertainty has -- has been reduced.

But that's indicative, I think, of the -- of the high standing that the dollar still retains in -- in the world.

Again, ultimately, the best thing we can do to create strong fundamentals for the dollar in the medium-term is to first keep inflation low, which maintains the buying power of the dollar, and second, to create a strong economy.

UNIDENTIFIED FEMALE: John Hilsenrath?

JOHN HILSENRATH, "WALL STREET JOURNAL": John Hilsenrath from "The Wall Street Journal".

Many Americans are upset that gasoline prices are rising so fast and that food prices are also going up.

Can you talk about whether there's anything that the Fed can or should do about that?

And can you also comment, elaborate on the increase that we've seen in the inflation forecast that the Fed put out today?

BERNANKE: Sure.

Thanks, John.

So first of all...

QUEST: A crucial political question.

BERNANKE: -- the gasoline prices, obviously, have risen quite significantly. And we, of course, are watching that carefully, that higher gas prices are absolutely creating a great deal of financial hardship for a lot of people. And it -- gas, of course, is a necessity. People need to drive to get to work.

So it's a -- it's obviously a very bad development to see gas prices rise so much.

Higher gas prices, higher oil prices also make economic development less favorable. On the one hand, obviously, the higher gas prices add to inflation. On the other hand, by draining purchasing power from households, higher gas prices are also bad for the recovery. They -- they cause growth to -- to decline, as well. So it's a double whammy coming from higher gasoline prices.

Now, our -- our interpretation of the increase in gas prices is the economist's basic mantra of supply and demand. On the one hand, we have a rapidly growing global economy. Emerging market economies are growing very quickly. And their demand for commodities, including oil, is very, very strong. Indeed, essentially, all of the increase in the demand for oil over the last couple of years and the last decade has come from emerging market economies.

In the United States, our demand for oil, our imports have actually been going down over time.

So the demand is coming from a growing economy, where we've seen about a 25 percent increase in emerging market output in the last...

UNIDENTIFIED MALE: that's a very key point that he's making here. So what he's essentially saying is it's because...

BERNANKE: -- television, we've seen...

UNIDENTIFIED MALE: Essentially, what he's saying is because there's a lot of demand in the emerging markets, and, therefore, that's because of growth, whereas for us, it's all about inflation in terms of the impact.

BERNANKE: That, in turn, has driven gas prices up quite significantly.

So, again, this is a very adverse development. It accounts, in the short run, for the increase in our -- pretty much almost all of the increase in our inflation forecasts, at least in the very near-term.

There's not much that the Federal Reserve can do about gas prices per se, at least not without derailing growth entirely, which is certainly not -- not the right way to go. After all, the Fed can't create more oil. We -- we -- we don't control the growth rates of -- of emerging market economies.

What we can do is basically try to keep higher gas prices from passing into other prices and wages throughout the economy, creating a broader inflation, which will be much more difficult to extinguish.

Again, our view is that most likely -- of course, we don't know for sure, but we'll be watching carefully -- our view is that gas prices will not continue to rise at the recent pace. And as they stabilize or even come down if -- if the situation stabilizes in the Middle East, that that will provide some relief on the inflation front. But we'll have to watch it very carefully.

SCOTT LANMAN, BLOOMBERG NEWS: Thank you.

Scott Lanman from Bloomberg News.

Mr. Chairman, you've stated several times this year that the recovery won't be fully established until we see a sustained period of stronger job creation.

First, has it become truly established yet?

And if not, what's your definition of a sustained period and what's your definition of stronger job creation?

BERNANKE: Well, as I -- as I mentioned, we've made a lot of progress. Last August, when we began to talk about another round of securities purchases, growth was very moderate and we were actually quite concerned that growth was not sufficient to continue to bring the unemployment rate down.

Since then, we have seen a reasonable amount of payroll creation, job creation. And that picked up...

QUEST: From there we'll take a break from Mr. Bernanke.

I think we've perhaps seen or heard the best of what he has to say so far. We could stay with him for the whole hour, but perhaps not too much merit on that.

Alison Kosik is at the New York Stock Exchange -- and, Alison, if you're anything like Peter Morici and Todd Benjamin, you've been frothing at the mouth to have -- to get in on the whole -- on this.

And so -- so from what you've heard, the Dow started at around 40, dropped down to the low 30s, you're now over -- over -- just over 50.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Yes, not much movement here. I just got off the phone with a trader and he's saying nothing earth-shattering.

I'm going to look over my shoulder and look at the volume. Volume has not picked up much. Investors really aren't diving in at this point. Nothing -- I guess really -- nothing really earth-shattering or moving about what the Fed chief is saying at this point -- Richard.

QUEST: All right.

Peter Morici, who is with us, we did -- we've had three things that struck me. Todd obviously points out, you know, gas prices causing hardship. Well, that's a statement of the obvious and it's a bad development to see them rise so much.

But we do say at least extended periods, a couple of meetings before - - before action.

Now, no one would hold him to whether it's a couple, six or seven. But a -- but he's -- he's -- he's settled down and he's settled in for the long haul here rate -- low rates.

PETER MORICI, UNIVERSITY OF MARYLAND: Absolutely. The Fed seems to have a very optimistic view, in my judgment, of inflation. I have the forecasts right here. And I'm looking at the numbers, as you are. And my feeling is that they are kind of on the low end of the range, in terms of where this could all sort out.

You know, there's no reason to believe that oil prices won't continue rising, not at the pace that they have, but that they won't continue to rise and that gasoline prices won't rise.

Also, his -- his growth forecast is -- is fairly optimistic.

QUEST: Right.

MORICI: Overall, he's creating a picture of a more comfortable world than private forecasters think is out there. And so, you know, the Fed is using this as a cushion.

He may come to regret this when he comes back again in six weeks, after the next meeting, and has another press conference.

QUEST: What...

UNIDENTIFIED MALE: I'm confident about that.

UNIDENTIFIED MALE: You know, Peter, one of the things, of course, he mentioned in terms of when they begin to tighten is the level of unemployment.

QUEST: Right.

UNIDENTIFIED MALE: He made that very clear.

What assumptions are you making about unemployment?

(CROSSTALK)

UNIDENTIFIED MALE: One of the things that Mr. Bernanke -- OK.

(CROSSTALK)

UNIDENTIFIED MALE: One of the things that Mr. Bernanke made very...

(CROSSTALK) (INAUDIBLE) you guys.

UNIDENTIFIED MALE: OK.

QUEST: OK. We...

(CROSSTALK)

QUEST: We'll -- we'll have to take -- leave it there for the moment.

Todd was just asking you -- can you hear me, Peter?

No. We've lost -- we've lost him.

Finally, while we just -- while Mr. Bernanke continues apace, a good idea to have this press conference, this news conference?

BENJAMIN: Well, look, I think, you know, he is being very open and transparent. And I think he is being as clear as he can be, because he can't really forecast...

QUEST: But...

BENJAMIN: -- what the future is going to be.

Are we really learning anything new?

No.

QUEST: But I think we're getting a tone and a feel that you don't often get.

(CROSSTALK)

QUEST: You know, economics is more than just the numbers.

BENJAMIN: No, that's absolutely right. But I think, at the end of the day, I think that, you know, we're not really getting anything earth- shattering, nothing unexpected. And -- and at least he's speaking in plain language.

QUEST: Which is a -- which is a...

BENJAMIN: An improvement, right.

QUEST: -- many thanks, Todd Benjamin, Peter Morici, Alison Kosik.

And as this, of course, was a first for the Fed, the first press. We'll know next time that the first 20 minutes or so is going to be a recitation of long economic detail.

One small step for man, a giant leap for science -- we'll tell you who's learned to walk again. We will completely change directions when we return after the break.

Thank you.

(COMMERCIAL BREAK)

QUEST: The bionic man -- and no, I'm not talking about Ben Bernanke, who we've heard from so much this hour. I'm talking about the real bionic man. Well, there's no such thing as a real bionic man. It's a classic staple of science fiction.

In one laboratory, though, bionics have become a reality -- robotic limbs. They are now giving humans a new lease on life.

We continue to break the mold and we see how eLEGS are helping people literally get back on their feet.

(BEGIN VIDEOTAPE)

EYTHOR BENDER, CEO, BERKELEY BIONICS: The idea was, in the beginning, to create exoskeletons that would give you extra strength. That was always the dream of the founders. Soldiers that need to carry up to 100 pounds, on average, every day. And because of that, they sustain back injuries. They thought let's make an exoskeleton to help soldiers to carry not only that 100 pounds, but actually go up to 200 pounds.

So taking the platform from an exoskeleton called Hulk, they thought let's develop something to get people to walk.

What is really unique about eLEGS is it's getting a person that has been bound to a wheelchair to stand up and walk. It sends signals from the crutches back to an on board computer that is battery powered that then powers motors that are sitting at your hips and the knees.

DR. JOHN LIN, SHEPHERD CENTER: I sustained a spinal cord injury 20 years ago as a result of a blood clot in my spinal cord. I'm totally paralyzed from my arm pits down.

As a physician this year, I am oftentimes much more reserved in participating in the trial, but not having walked for 20 years, I was curious to try.

I just hope I don't fall on my face.

BENDER: You stand up, walk. It obviously has a lot of social benefits. You are looking people in the eye and you are able to go to the ball park and stand up and cheer with the friends. That's the vision.

But then, in addition to that, there's a lot of health benefits associated with this, not only just the pure exercise of walking, but also there is a lot of complications that comes with being in a wheelchair sitting all day long.

UNIDENTIFIED MALE: You're ready for a step.

Thanks. And a (INAUDIBLE) step.

LIN: At some point, you feel your body just moving. I mean you see this pair of shoes just keep on moving, you know?

And it's tough to -- to make a connection. That's -- that's my -- my legs. That's my, you know, my feet, because I'm going to -- I haven't used them for so long now. So it's tough to -- to identify themselves as my own.

Hopefully, in the future, they will be able to get -- help somebody with a spinal cord injury to go up and down steps, to go hiking, go down to the beach.

It's one of the first few pilots that can us into independence. And as the cliche goes, go, you know, where no man has gone before.

(END VIDEO TAPE)

QUEST: Breaking the mold.

Another kind of technology and what looks like a step in completely the wrong direction. People are talking about this all over the world. Millions of gamers are at a risk of massive data breach. Two giants of the console gaming world are admitting their online servers have been compromised.

Microsoft has warned users playing Modern Warfare 2 on Xbox LIVE that they could be at risk from phishing. And that is, of course, as you know, when you're tricked into giving up data -- the phishing expedition. That's from Microsoft.

The bigger threat right now is with the Sony PlayStation network. It was taken offline last week after being hijacked. Sony is admitting the network's 70 million members have had their personal data compromised. This isn't just e-mail addresses. No, no, no, no, no -- home addresses, passwords, the answer to security questions and, of course, in some cases, credit card information, credit card details. Sony does not yet know for sure if these are safe or not.

Look at the statement that Sony has put out. It says: "While there is no evidence that credit card data was taken at the same time, we cannot rule out the possibility."

Sony is advising that you assume the worst. The PlayStation network is still offline. Sony is working out what goes on. Keeping it going isn't keeping happy -- keeping it offline isn't keeping the gamers happy, but then neither is the compromising of their personal data.

And Jim Boulden explains it's part of the -- a crucial part of the entire company's strategy.

(BEGIN VIDEO CLIP)

JIM BOULDEN, CNN CORRESPONDENT (voice-over): It's known as PSN -- the PlayStation Network. One of Sony's big draws to PlayStation 3 was online gaming. Boot up a game like Black Ops and play friends and strangers around the world. It's estimated 70 to 80 million people joined the PSN. But only a fraction of them needed to use a credit card to get, say, premium content, or, as Sony hopes, use the PlayStation 3 as more than a game machine for teenagers. Plug in your credit card and you can stream or download films, hopefully for the company, a Sony film.

TIM INGHAM, "COMPUTER AND VIDEO GAMING" MAGAZINE: Sony has positioned PlayStation 3 not as a games console. And it has come out and said that it doesn't see it as a games console. It sees it as an entertainment hub that sits in the middle of the lounge and provides movies, TV.

BOULDEN: But Sony now admits the PSN was hacked last week, forcing the company to bring down the network on the 20th. So for days, Sony has made no money from the PSN and it's taken nearly a week for Sony to inform users to watch out for credit card fraud.

NICHOLAS THOMPSON, "THE NEW YORKER": There's a real dilemma that companies face when they're hacked -- do you quickly tell everybody so they can take precautionary, defensive measures?

Or do you wait and really try to figure it out?

BOULDEN: Sony also joins the list of companies facing a P.R. nightmare on the back of promises of secure online payment channels.

INGHAM: PlayStation Network is a highly profitable part of not only Sony PlayStation, but Sony itself. And online services are at the very heart of what Sony sees its 10-year game plan as in entertainment. So for it to pull the plug for a week is a really, really big deal.

BOULDEN: A big deal to its reputation and to its bottom line.

(VIDEO CLIP)

BOULDEN: Especially if people start to second guess just how safe these online payment channels really are.

Jim Boulden, CNN, London.

(END VIDEO TAPE)

QUEST: When we come back in a moment, it is to the Abbey that we will go, because Kate and William have been attending the rehearsals. We'll tell you what happened after the break.

(COMMERCIAL BREAK)

QUEST: Kate Middleton and Prince William arrived at Westminster Abbey a short while ago -- a private rehearsal, together with the clergy, Harry and the Middleton family, according to Clarence Haus (ph) and apparently according to some, there will be a dinner with the clergy, as well.

Max Foster is at Westminster Abbey.

They obviously didn't go in the Great West Door -- Max, what did you see?

MAX FOSTER, CNN ANCHOR: Well, they went straight past it and they're going to Dean's Yard. So they've gone to the rear entrance, obviously. But we know what there are rehearsals taking place. Actually, we weren't given any advanced warning, but it was confirmed afterward. So they're in the Abbey right now. And Catherine is very keen, of course, to see the floral display. She's very involved in deciding what flowers will be going into the Abbey and the florists have been working on that all day. So she's going to get a real sense of those trees going right down the aisle - - enormous trees, Richard. You saw them being delivered yesterday.

QUEST: Max Foster, keep an eye. And when they come out, if they come over and say hello to you, let me -- let us be the first to know.

Max Foster is at the Abbey.

The British prime minister, David Cameron, representing the British government at the wedding of Prince William and Middleton.

I spoke to David Cameron in the gardens of Ten Downing Street earlier today.

He told me it's going to be a great day for Britain.

(BEGIN VIDEOTAPE)

DAVID CAMERON, BRITAIN PRIME MINISTER: Well, it's a very exciting time. And, as you know, I mean, the British people, we don't always wear our heart on our sleeve. But I think people are genuinely excited. It's not just that it's a good looking prince and a beautiful princess. It's much more than that. The monarchy is such an amazing institution. It's been through so many incredible phases.

And this is, if you like, the team of the future. So I think people are getting very excited about it.

QUEST: Team of the future.

But is this also an occasion for you to give a push to changing the laws of succession?

I know you've said it's going to be difficult. Other countries are involved.

But what are you going to do to give that a push?

CAMERON: Well, I do think this is a issue for today. I mean today it's all about celebrating the forthcoming wedding and the excitements around that. I think that everyone in Britain would take a view that in future, it is right that you shouldn't be disqualified from the throne if you marry a Roman Catholic and, you know, if your first born is a -- a girl rather than a boy, they should be able to, you know, take the succession.

I think those things are things that should be settled for the future.

But we always have to remember that she's not just our queen, she's the queen of 50 other realms around the world. And so everyone has to agree to this. So the process is underway, but I think for the next few days, we should be thinking about William and Kate, the institution of the monarchy, the great day, the celebration and the fun that everyone is going to have.

QUEST: I feel like a Grinch having to raise these issues in some way, but if we talk about the cost of the wedding -- because everybody asks me, what about the cost it a -- in a time when there are cutbacks?

CAMERON: Well, the cost is really being borne by the royal family. Clearly, the government has some budget responsibilities for policing and things like that. That's all being met from within budgets.

But I have to say, when you go out onto The Mall -- I went for a run around there last night. When you see the television cram -- cameras, the temporary studios, the -- the tourists who are here, the excitement there is, I believe that, actually, this is going to be a fantastic advertisement for Britain. We've got this amazing heritage. We're also doing some very exciting, modern things here in this country, as well.

But I think people will look at this and think oh, I want to come and -- come and visit the set, as it were.

QUEST: Do you believe there's a strong economic advantage of -- a benefit, a boom to what we're going to see?

CAMERON: Well, I think that the royal family, the monarchy, the institution and the heritage in Britain is part of our attractiveness as a country. When people come here, there are so many things to do, whether it's Shakespeare, whether it is Windsor Castle or whether it is modern art galleries. We've got all of those things.

But the -- the royal family is definitely a great -- a great thing that Britain has.

QUEST: Security will be robust.

CAMERON: Yes.

QUEST: What's going to be the biggest challenge?

CAMERON: Well, I think making sure that everything goes well on the day. Security is clearly a challenge. They were doing a rehearsal at 3:00 a.m. In the morning. I sleep just there. And I kept waking up as I heard someone go, "Eye is right" or whatever it was, the command that they were giving to the military. So we do these things quite well in this country.

So, fingers crossed, it will -- it will go well.

QUEST: And it mustn't be forgotten that those ceremonial officers will be the same officers who may have been, only weeks or months ago, with -- in Iraq or Afghanistan or -- or a part of the fighting forces. It's not just ceremonial.

CAMERON: No, that's right. It's a remarkable thing about the British Army that the same troops that guard the queen and the royal palaces, that do the changing of the guard, that do the queen's birthday, the trooping of the color, they also serve in theaters of war like Afghanistan. And sometimes, as you say, going straight from one to the other. And it's a great advertisement for the British Army.

QUEST: Two other questions.

Firstly, what are you -- you'll be in the tails, obviously. You -- you...

CAMERON: Yes.

QUEST: -- you've given in on that one and it's -- it's tails all the way.

CAMERON: And I'm always dressed properly.

QUEST: Always dressed properly.

But what will you be -- the moment you're looking forward to most?

CAMERON: I think I'm really looking forward to being in Westminster Abbey and being able to see them walk down that aisle. I mean, the excitement of previous royal weddings was -- was huge. And I remember very, very clearly what happened when Princess Diana was married and all of that.

But being on the streets was great. But actually being in Westminster Abbey, being able to see them, is a huge privilege. It's a great treat for me and Samantha. And I think we'll be very, very excited at that moment.

QUEST: What a difference 30 years makes. Thirty years ago, you and I shared one thing in common -- we both slept on the streets.

CAMERON: Where were you?

I was at the top right hand corner of The Mall opposite Buckingham Palace. We got there about 10:00 in the morning the day before to get a good pitch.

Where -- where were you?

QUEST: Ludgate Circus, just outside -- just outside St. Paul's Cathedral. We got there late at night.

What would your advice be to anybody camping overnight?

CAMERON: Well, the most important thing I remember was taking water. It was really -- actually, the weather was like this. It was very hot. It was quite a hot night. It was a very hot day. And you need lots of water, because you don't want to lose your place. So -- and probably I should say all sorts of things, like make sure you've asked your parents' permission and take responsible adults and don't drink too much and all those things. But water is what I remember -- getting short of water. That was a bad -- a bad -- a bad idea.

QUEST: Prime Minister, thank you.

(END VIDEO TAPE)

QUEST: The British prime minister, David Cameron.

Thirty years ago, sleeping on the streets outside for the -- for the wedding, today being in the Abbey.

A lot can happen in three decades. A lot can happen in 24 hours. (INAUDIBLE) even tomorrow.

Why do we always have Tweet -- sort of chintzy music for this wedding?

Anyway, tomorrow we'll have different music.

QUEST MEANS BUSINESS will be coming to you live from Buckingham Palace. We'll be bringing you the final countdown to the big event and all the action. It's part of the royal week of wedding coverage.

A live picture there. A glorious night in London. It's on CNN.

And if I hear one more string orchestral arrangement, there will be trouble.

That is QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in London.

Whatever you're up to in the hours ahead, I do hope it's profitable.

"PIERS MORGAN TONIGHT" is ahead after your news headlines.

END