WASHINGTON (AP) - 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 a news conference with reporters, 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.
Bernanke appeared relaxed with reporters, projecting a calming presence and saying nothing that might rattle investors.
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.
The Dow Jones industrial average rose 95.59 points, or 0.8 percent, to close at 12,690.96. The Dow was already up before Bernanke's appearance and rose another 50 points after the Fed chairman spoke. The last time the Dow was this high was in May 2008.
The Standard & Poor's 500 rose 8.42, or 0.6 percent, to 1,355.66. That was its highest price since June 2008. The index is still 13 percent below the record high of 1,565 it reached in October 2007. The Nasdaq composite index rose 22.34, or 0.8 percent, to 2,869.88.
Fed signals $600B bond program to end in June
The economy and job creation have strengthened enough for the Federal Reserve to end its $600 billion Treasury bond-buying program in June as planned, the Fed signaled Wednesday.
Ending a two-day meeting, the Fed made no changes to the program. The decision was unanimous. The bond purchases were intended to lower loan rates, encouraging spending and boost stock prices. But critics worried that the purchases would feed inflation.
The Fed downplayed inflation risks. It acknowledged a spike in oil prices, but concluded that the pickup in inflation will be temporary.
The Fed offered a mostly upbeat assessment on the economy. It said that the economic recovery is proceeding at a "moderate pace" and hiring is improving gradually. Consumers and businesses also are spending enough to support the recovery, the Fed said.
To nurture the recovery, the Fed also kept a pledge to hold its key interest rate at a record low near zero for an "extended period." The Fed has kept rates at ultra-low levels since December 2008.