Bernanke is wrong on inflation.

Bernanke might be talking tough on interest rates, but many investment analysists are far fron convinced. Many believe that the collapsing housing market will bring the economy down with it, pushing the US into recession by the end of the year and reducing inflationary pressure. Rather than raising interest rates, the Fed will be beginning a new cyle of monetary policy easing.

Notwithstanding what the investment bankers might be saying, inflationary pressures remain strong. In February, the Fed's preferred measure of inflation - the price index for consumer spending on items excluding food and energy - rose 0.3 percent. The price gauge rose 2.3 percent from a year earlier; significantly above the Fed's comfort level of 1 percent to 2 percent.

April 30 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke's assertion that interest rates may need to increase to curb inflation is wrong. That's what Goldman Sachs Group Inc., Merrill Lynch & Co. and UBS AG are saying.

While Bernanke warned last month that the odds of worsening inflation have increased, chief economists at the three firms say the worst housing slump in a decade may drive the U.S. economy into a recession and stifle consumer prices. Their chief economists say the Fed will cut its target for overnight loans between banks at least three times this year.

The conflict boils down to opposing views about real estate. Central bank governors found no evidence that the housing market had affected the broader economy, according to notes of their March policy meeting, released April 11. The National Association of Realtors said last week existing home sales fell 8.4 percent in March, the steepest drop since 1989.

Bernanke is missing "the linkage between residential housing investment and the broader economy," Jan Hatzius, chief U.S. economist at New York-based Goldman, the world's most profitable securities firm, said in an interview. "The housing downturn is of the first order of importance." Hatzius says the Fed will cut rates three times this year, to 4.5 percent from 5.25 percent.