Washington – Bernanke Offers Clues About Steps To Raise Rates

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Fed Chairman Ben Bernanke is seen on television on the floor of the New York Stock Exchange holding a news conference after the announcement that the Federal Open Market Committee would leave interest rates unchanged, Wednesday, April 27, 2011, in New York. (AP Photo/Henny Ray Abrams)Washington – At a historic news conference, Federal Reserve Chairman Ben Bernanke offered clues Wednesday about when and how the Fed would begin raising interest rates.

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Bernanke said that as long as the Fed continues to say rates will remain at historic lows for “an extended period,” rates won’t rise until the Fed has met at least twice more. The Fed, which ended a two-day meeting Wednesday, gathers about every six weeks.

The Fed chairman also said any additional steps by the Fed to try to lower unemployment might raise other risks, such as higher inflation.

If inflation were to accelerate, it could then reduce employment. That’s because the Fed would have to raise rates to reduce price increases.

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, gained another 50 points half an hour before the market closed.

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

It 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 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.

He said that step would be a relatively modest one. 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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