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Bernanke sees need for further stimulus : The Federal Reserve chairman also says the central bank will help keep the dollar strong.

November 17, 2009|Neil Irwin and Ylan Q. Mui | Irwin and Mui write for the Washington Post.

WASHINGTON — Federal Reserve Chairman Ben S. Bernanke on Monday waded into the debate over the vigor of the economic recovery, offering a sobering view of what lies ahead.

In his most detailed comments on the economy in months, Bernanke focused on the weak job market and reiterated that inflation would remain subdued, suggesting he is looking to keep interest rates at rock-bottom levels.

Speaking at the Economic Club of New York, Bernanke also offered rare remarks about the value of the U.S. currency, saying the Fed's policies would "help ensure that the dollar is strong."

Stepping into an arena usually reserved for Treasury secretaries, he signaled that the central bank was paying close attention to the dollar's slide.

Bernanke's remarks came a day after China's top bank regulator criticized the Fed's handling of monetary policy, saying the weak dollar and low U.S. interest rates were creating a global bubble in asset prices.

The U.S.-China economic relationship is under particular scrutiny this week as President Obama visits Beijing. China is the largest foreign holder of U.S. government debt and thus would be exposed to massive losses if the dollar plummeted.

The overriding take-away from Bernanke's speech, however, was that the Fed should continue aggressive efforts to stimulate economic activity.

"Continued growth next year is likely," Bernanke said. But he added, "Some important head winds -- in particular, constrained bank lending and a weak job market -- likely will prevent the expansion from being as robust as we would hope."

Bernanke's comments position him in the center of the range of opinion at the Fed: He agrees with those who see a weak recovery and think inflation is unlikely to be an immediate threat. But did give a nod to concerns about rising prices in the future, noting that expectations of inflation can "be early warnings of actual inflation" and "must be monitored carefully."

The jobless rate rose to 10.2% in October and is widely forecast to keep edging upward well into 2010.

"The best thing we can say about the labor market right now is that it may be getting worse more slowly," Bernanke said.

And once it starts improving, he said, "the unemployment rate will decline only slowly if economic growth remains moderate, as I expect."

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