BOTTOM LINE:  Speaking last night, Bernanke noted that the economy is still fragile with downside risks to inflation and upside ones to growth.  He notes risks to the upside on inflation from the continued increases in the price of oil.  Greatest concern, and strongest language, devoted to the possibility of inflation expectations becoming unanchored.  Passthrough into other prices has remained limited.  On the other side of the balance, he notes that Fed action has reduced risks of a "substantial downturn" though downside growth risks certainly remain. 

 KEY POINTS:

1.  At a Boston Fed conference on inflation -- more specifically the Phillips Curve -- this evening Chairman Bernanke spoke on the current situation.  Most of his speech, however, was devoted to more academic longer term issues.

2. The recent increases in oil prices are clearly continuing to cause worries as Bernanke calls the increases "sharp."  Though these have not yet passed through into broader prices, or domestic labor costs, concerns clearly remain that they might.  

3. In somewhat stronger language than usual he promises that the "FOMC will strongly resist an erosion of longer-term inflation expectations."  Indeed, this seems to be the most pressing concern about the latest round of commodity price increases -- that they will unmoor inflation expectations.  The concerns about this are not purely limited to inflation, as he notes the potential for long-run negative impacts on growth of a drift upward in these expectations.

4.  Despite the large rise in the unemployment rate, taken together recent data have done little to change his view on the economic outlook.  There are downside risks to growth from the housing sector and the spillover into broader financial conditions.  However, he views the risks of a more serious downturn as having been mitigated by the actions that the Fed has taken, both the traditional and non-traditional ones.  He expects improvement over the remainder of this year driven by the fiscal stimulus, further credit market improvement, a fading of the housing drag and strong foreign demand.

5.  The more academic portion of the speech featured four areas where he would like to see further research: (1) the link between commodity prices and oil, (2) how labor costs interact with inflation, (3) the use of real-time information by policy makers and (4) inflation expectations.