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Clues offered on interest rates as Bernanke meets the press; Fed chief concedes unemployment woes

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 increase, the Fed would have to raise rates to slow borrowing and spending and blunt price increases. Hiring then might slow.

Speaking with reporters at a 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 about 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 in the Fed's 98-year history of what are envisioned as regular sessions for a chairman.

Bernanke appeared relaxed with reporters, projecting a calming presence and saying nothing that might rattle investors.

He 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 this point, Bernanke said Wednesday, that phrase means "a couple of meetings." The Fed, which ended a two-day meeting Wednesday, gathers about every six weeks.

Abandoning the "extended period" language would be viewed as a signal that the Fed was preparing to boost interest rates.

Stocks rose after Bernanke said he expects the economy to continue growing through next year and 2013. The Dow Jones industrial average, which was up about 50 points when Bernanke began speaking, closed up 95.59 points.

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.

The news conference offered Bernanke a chance to drive a debate about Fed policy. Critics have said the Fed's efforts to boost growth raise the risk of high inflation. Investors are seeking clues about when the Fed will start raising interest rates to help slow price increases.

Bernanke said the first step in tightening interest-rate policy could involve halting the Fed's reinvestments of the proceeds from its bond holdings. Bernanke would not be specific about when that step might be taken, saying it will depend on inflation and economic growth in coming months.

He said the move would be relatively modest. But it would constitute the Fed's first tightening because it would allow interest rates to creep up.

The news conference, the first of three scheduled this year, is part of a long-standing Bernanke effort to make the Fed more transparent.

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