Bernanke offers clues about steps to raise rates at first news conference

At a historic news conference, United States Federal Reserve Chairman Ben Bernanke offered clues Wednesday about when and how the Fed would begin raising interest rates.

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 gasolene 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.

The Fed expects the economy to grow between 3.1 per cent and 3.3 per cent this year. That's below the Fed's previous forecast in January, but the Fed also said it is more optimistic about the unemployment rate falling to around 8.4 per cent to 8.7 per cent by yearend.

The Dow Jones industrial average rose 96 points, or 0.8 per cent, to close at 12,691 Wednesday.

The Standard & Poor's 500 rose 8, or 0.6 per cent, at 1,356. The Nasdaq composite index is up 22, or 0.8 per cent, at 2,870.

Earlier, the Fed signalled that the economy and job creation have strengthened enough for it to end its US$600 billion Treasury bond-buying programme in June as planned.

- AP