Federal Reserve Chairman Ben Bernanke said Wednesday it would be “reckless” for the central bank to promote fiscal policies that encourage economic growth at the expense of higher inflation.

Bernanke and fellow members of the Federal Open Market Committee, which sets most central bank policy, mildly raised their forecasts for economic growth and unemployment and announced no changes to Fed policy, including interest rates.

During a press conference following a two-day meeting by the FOMC, Bernanke said inflation rates remain low enough to keep interest rates at their historically low range of 0% to 0.25% through late 2014.

Spiking energy prices, especially for oil and gasoline, have led some to call for the Fed to consider raising interest rates sooner to ward off dangerously high inflation.

As he has in the past, Bernanke said no policy shifts are off the table. If inflation was to rise above the Fed’s 2% target rate the Fed is prepared to act, he said.

“We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target,” the chairman said.

Bernanke made it clear that reducing the stubbornly high unemployment rate – 8.2% in March – and getting more Americans back into the work force remains the top priority for the central banks. He reiterated his long-held position that inflation remains a long-term concern but not an immediate priority.

Besides, economic fundamental still project low inflation in the near-term, he said.

FOMC members could shift their positions on interest rates if the economy improves more rapidly than expected.

Bernanke said he’s “comfortable” with the consensus reached Wednesday among FOMC members that kept the rates low.

For months a debate has simmered among FOMC members, some of whom believe the Fed’s easing policies haven’t worked and will inevitably lead to inflation. These minority dissenters believe the Fed should step back and let market forces take hold.

The majority of FOMC members, led by Bernanke, believe the financial crisis and recession that followed would have been markedly worse if not for the dramatic, and in some cases unprecedented actions taken by the Fed. This group is determined to remain active in an effort to stave off another recession.

Earlier, the central bank announced it had left interest rates unchanged from the low range set in December 2008 during the worst of the financial crisis. At the same time, the Fed acknowledged ongoing difficulties in Europe, a short-term spike in energy prices and sustained weakness in the U.S. labor and housing markets.

The FOMC said the U.S. economy is expanding “moderately” and as has been their policy for over three years the members kept their options open to additional intervention.

The Fed statement addressed the bumpy recovery: “Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.”

In sum, the announcement differed little from Fed announcements in recent months, as economic conditions have see-sawed back and forth between fledgling recovery and stalled recovery.

 “The FOMC statement is almost identical to the one given in March with its comments both on the economy and inflation and their current policy,” said Peter Boockvar, equity strategist at Miller Tabak + Co.  

Market analysts had predicted the status quo.

 “Obviously they’re going to stay pat. There will be no change to monetary policy,” said Peter Cardillo, chief market economist at Rockwell Global Capital, ahead of the announcement. “We’ll continue to get the same rhetoric.”

Earlier this year U.S. labor markets looked to be strengthening and there was talk among analysts and investors that the Fed should reconsider its pledge to keep interest rates low for another two and a half years at minimum. Recent jobs data, however, has indicated that the labor markets recovery might not be as strong as earlier believed.

The FOMC members said they expect labor markets to start improving by the fourth quarter of 2012 and that unemployment should continue to fall through 2013..

“The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate (of full employment and low interest rates),” the Fed’s statement said.

A disappointing March jobs report which showed that a mere 120,000 jobs were created last month, well below expectations, rekindled speculation that the Fed might consider additional fiscal easing in the form of another round of bond purchases by the Fed.

Despite the lousy numbers, the unemployment rate remained at 8.2%, an economic anomaly tied to the fact that many thousands of Americans are no longer looking for work, which means they aren’t counted as part of the unemployed.

As it has for months, the Fed kept the door open for further actions: “To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy,” its statement said.

 

 

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