Fed has no plans to enter the oil business

Gasoline prices don’t affect inflation until they do.

That was one of the key points from Federal Reserve Chairman Ben Bernanke’s historic news conference this afternoon. Asked if the Fed could do anything about rising gasoline prices, Bernanke replied:

There’s not much the Federal Reserve can do about gas prices per se. The Fed can’t create more oil.

So at least we know that the Fed’s expanded powers don’t include oil production. Although I think Bernanke may have left the door open on the Fed getting into refining at some point in the future. The Washington reporters at the press conference missed that follow up.

They also failed to ask The Beard if buying oil futures might not generate a better return for the Fed than those Treasuries its been buying, which by the way, it plans to stop doing in June. The Fed’s decision to end its $600 billion bond-buying spree won’t have a significant effect on financial markets or the economy, Bernanke predicted.

Rising gasoline prices, of course, are raising concerns about inflation, but Bernanke said he believes gasoline prices will stabilize or perhaps even drop in the coming months, which will ease inflation fears. He added:

Gas prices are creating a hardship for a lot of people. Higher gas prices, higher oil prices also make economic development less favorable. It’s a double-whammy.

You have to love it when The Beard tries to build his street cred by throwing out plain-English terms like “double whammy.” 

While the Fed can’t do much about gasoline prices, it can and should attempt to keep the inflationary effects of higher fuel prices from spreading and “creating a broader inflation that would be more difficult to extinguish,” Bernanke said.

Um, would that mean like hamburgers, chocolate, soft drinks, diapers and airline tickets? Because in the past few days Coca-Cola, Hershey’s, McDonald’s, and other consumer companies have announced price increases, largely because of higher commodity prices.

The Fed, of course, dismisses such commodity increases as “transitory,” which is Fedspeak for “it doesn’t count.” That sort of inflation is only a concern for those of us who eat or drive.

But Proctor & Gamble and Kimberly-Clark have both said they plan to raise prices on toilet paper and other paper goods because of rising pulp and gasoline prices. The Beard acknowledged that, in fact, gasoline prices are having an effect on “headline inflation,” that the effects are temporary.

Fedspeak translation: next question, please.