Bernanke sees risks in steps to spur jobs

WASHINGTON -- Federal Reserve Chairman Ben Bernanke said Wednesday that the Fed can't take additional steps to try to ease high unemployment without escalating inflation.

If inflation were to accelerate, the Fed would have to raise rates to slow borrowing and spending and blunt price increases. Hiring might then slow.

Speaking at his first-ever news conference, Bernanke sketched a picture of an economy growing steadily but still weighed down by a prolonged period of unemployment, now at 8.8 percent.

He acknowledged the pain that is causing, noting that around 45 percent of the unemployed have been without a job for six months or longer.

"We know the consequences of that can be very distressing because people who are out of work for a long time, their skills tend to atrophy," Bernanke said.

But he added: "It's not clear that we can get substantial improvements in payrolls without some additional inflation risks, and in my view we can't achieve a sustainable recovery without keeping inflation under control."

The news conference was the first time in the Fed's 98-year history that a chairman has begun holding regular sessions with reporters.

The Fed chairman offered some clues about when and how the Fed would begin raising interest rates.

For more than two years the Fed has kept a pledge to hold its key rate at a record low near zero for an "extended period." At his news conference Wednesday Bernanke said that, at this point, that phrase means "a couple of meetings."

The Fed, which ended a two-day meeting Wednesday, gathers about every six weeks.

Once the Fed abandons the "extended period" language, it would be viewed as a signal that it was preparing to start boosting interest rates.

Bernanke acknowledged that higher gasoline prices are creating a financial hardship for many Americans. But he said the Fed doesn't think gas prices will continue to rise at their recent pace.

Bernanke said the first step in tightening interest-rate policy could occur when the Fed stops reinvesting the proceeds of its bond holdings. Bernanke would not be specific about when that might occur. He said it will depend on inflation and economic growth in coming months.