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Bernanke says inflation rate still too low

BOSTON — The Federal Reserve is prepared to take new action to boost the weak economy, Chairman Ben Bernanke said Friday, because inflation is still too low and the unemployment rate remains stubbornly high.

In comments at the Federal Reserve Bank of Boston, Bernanke laid out the foundations for a new round of unconventional efforts to strengthen growth, which analysts expect will be announced after the Fed's next policy meeting Nov. 2-3. Bernanke clearly pointed to inflation, which is running below the Fed's goals, as the prime reason for taking more steps to stimulate the economy.

The Fed's policymaking committee "is prepared to provide additional accommodation, if needed, to support the economic recovery and to return inflation over time to levels consistent with our mandate," Bernanke said.

Underscoring the low inflation rate, the Labor Department said Friday that consumer prices rose 0.1 percent in September and were unchanged when volatile food and energy were excluded. Over the past year, the consumer price index rose 1.1 percent, or 0.8 percent excluding food and energy.

Bernanke expressed concern that the feeble pace of economic recovery will not be enough to give employment the jump-start it needs.

"Growth next year seems unlikely to be much above its longer-term trend," he said, which would mean that "job creation may not exceed by much the increase in the size of the labor force, implying that the unemployment rate will decline only slowly."

Economists who study the Fed have become more confident in recent weeks that the central bank will announce plans to purchase hundreds of billions of dollars in U.S. Treasury bonds at its next meeting to try to boost growth. Bernanke's speech both confirms that possibility and spells out the rationale.

By buying Treasury bonds, the Fed could help spur the economy by lowering long-term interest rates, making it cheaper for Americans to take out a mortgage or for businesses to borrow money to build a new factory. The action could also raise the inflation rate. As more dollars begin to flood the market and consumers begin to buy more goods, the increased demand would push prices higher.

Bernanke says inflation rate still too low 10/15/10 [Last modified: Friday, October 15, 2010 9:47pm]
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