WASHINGTON, April 28 (UPI) -- The Federal Reserve has swung its focus to rising prices, signaling little chance the central bank would begin extra action to spur job growth and lower unemployment.
Inflation, or a general rise in prices, was listed 11 times in Wednesday's Fed's 461-word statement on monetary policy, in which bank officials voted to keep the benchmark interest rate near zero.
Employment, by contrast, won three mentions. And during Fed Chairman Ben Bernanke's first news conference Wednesday, inflation was cited more than twice as often as jobs.
"Certainly there was more talk of inflation," Ted Gayer, a former senior economist at the White House Council of Economic Advisers from 2003-04, said in a phone interview. "For the people who are more concerned about the Fed being aggressive on their employment mandate, there's no indication that we're going to see" a third round of so-called quantitative easing.
"The Fed can only do so much," said Gayer, now a senior fellow at the Brookings Institution think tank. "It's hard to see how much more aggressive they could be."
After printing trillions of dollars to buy bonds while holding its benchmark interest rate near zero, the Fed may have few new options to spur hiring even as the unemployment rate hangs at 8.8 percent. Some policy makers say they worry that rising inflation, including surging prices of commodities like oil, means the Fed should phase out its extraordinary measures meant to support the economy.
Bernanke said Wednesday that the Fed planned to end its $600 billion program to buy long-term U.S. debt as planned in June. The Fed's balance sheet has more than tripled to $2.7 trillion since Lehman Brothers Holdings Inc. went bust in September 2008 and the central bank began buying Treasuries and mortgage securities to hold down interest rates and spur lending during the financial crisis.
"There's a question of what bullets are left in the gun," Charles Nelson, an economist at the University of Washington, said in a phone interview.
And there's a risk to adding billions of dollars more to the central bank's bond holdings to lower unemployment. If further asset-purchase programs push inflation even higher in the medium term, the Fed may have to overcompensate later with hurried interest rate hikes that could hurt the very economic growth it is trying to support.
Recovery in the labor market has been sluggish even with the Fed's help. The central bank Wednesday revised its outlook for the "normal" long-term unemployment rate to between 5.2 percent and 5.6 percent, more than 3 percentage points below the current level.
The number of unemployed Americans has jumped 74 percent since March 2008, to 13.5 million, the U.S. Bureau of Labor Statistics said. That's down from a high of 15.6 million in October 2009.
But the jobless rate won't drop to less than 6.8 percent even by 2013, the Fed's outlook predicted, while inflation estimates have increased to between 2.1 percent and 2.8 percent this year, even as Bernanke called recent jumps in food and gas prices temporary. The Fed, which has no plans to increase interest rates in the near future because of slow job growth, prefers prices to rise at a rate just less than 2 percent.
"If inflation persists or if inflation expectations begin to move, then there's no substitute for action," Bernanke said to about 50 reporters during the one-hour news conference. "We would have to respond."
The Fed has a mandate to keep both prices stable and unemployment low but Bernanke's words may signal a greater commitment to price stability than to the jobless rate.
It seems now "that inflation is the most important thing, and unemployment is kind of secondary," Nelson said. "My goodness, we've really swung to the other extreme."
