Addressing the Senate Banking Committee this morning, Fed Chairman Ben Bernanke gave the speech that most people expected: The current monetary policy (read: Fed Funds Rate) is at a level that both sustains economic growth, and tempers inflation pressures.
In addition, inflation expectations "appear to have remain contained," Bernanke said. He called that "encouraging" and this is a good sign for markets because inflation can be a Self-Fulfilling Prophecy. When people believe that inflation will happen, they prepare for inflation, and in doing so, it makes inflation actually happen.
A large part of the Fed’s role is to manage inflation expectations and Bernanke seems pleased with the back-and-forth between his team and global investors.
Bernanke prepared remarks also alluded to his concern that inflation won’t subside as expected. He cautioned that the Federal Reserve is "prepared to take action", if necessary. Despite that statement, however, markets are generally pleased with the testimony and mortgage rates are falling this morning.