By David Bailey
MINNEAPOLIS (Reuters) - Federal Reserve Chairman Ben Bernanke on Thursday said the U.S. central bank would spare no effort to boost weak growth, but to the dismay of investors stopped short of a full plunge into further monetary support.
"The Federal Reserve will do all it can to help restore high rates of growth and employment in a context of price stability," Bernanke told the Economic Club of Minnesota.
In what could be taken as a bid to quell concerns among some of his colleagues that further easing could spark inflation, Bernanke said a rise in consumer prices this year would likely to be transitory.
"We see little indication that the higher rate of inflation experienced so far this year has become ingrained in the economy," he said.
U.S. stocks fell as investors registered disappointment that Bernanke did not lay out a plan of action for the central bank's policy-setting Federal Open Market Committee. The dollar extended gains against the euro, while Treasury debt prices rose.
"Although the speech was lacking in any specifics about potential policy options, we see the relatively downbeat nature of the chairman's comments on the growth outlook as confirming our view that the FOMC is inclined to take further accommodative steps at its September meeting," said Michael Gapen, an economist at Barclays Capital in New York.
A widening debt crisis in Europe and collapse in consumer and business confidence in the United States has raised concern the U.S. and global economies could slide back into recession.
So stark is the recent deterioration in the global economic recovery that the political debate in Washington has veered in only six weeks from a preoccupation with how to cut U.S. debt to a renewed urgency on lowering unemployment.
Central banks around the world, for their part, have put inflation-fighting campaigns on hold in response to the worsening economic outlook. The European Central Bank held steady after a series of rate hikes on Thursday, and the Bank of Canada on Wednesday likewise opted not to withdraw any more monetary stimulus.
South Korea, Indonesia, Malaysia and the Philippines also paused in fights against inflation while they assessed how much a slowdown in U.S. and European growth will hurt their economies.
President Barack Obama is scheduled to lay out a jobs package worth more than $300 billion later on Thursday, and job creation was a key theme for Republican presidential hopefuls at a debate on Wednesday.
FEW NEW CLUES ON EASING
Most analysts expect the Fed to act to boost growth, if not at a meeting later this month, shortly thereafter. But other than offering a bit more insight on the outlook for inflation, Bernanke offered few fresh glimpses into Fed thinking.
He repeated comments made two weeks ago that the Fed has a range of tools to provide stimulus and is ready to use them.
The Fed cut benchmark rates to near zero almost three years ago to pull the economy out of a sharp recession. It then bought $2.3 trillion worth of longer-term securities in two installments ending in June to fuel faster expansion.
With confidence crumbling, the Fed on August 9 eased policy further by extending a promise to keep rates near zero through mid-2013, a decision that drew three dissents on the FOMC.
Many analysts expect the Fed's next move to be a shift in its $2.8 trillion balance sheet to holdings of more longer-term securities. The point of such a move would be to "twist" down interest rates for longer maturities, potentially spurring mortgage refinancing and other activity that depends on longer-term interest rates.
A more modest step under consideration would be for the central bank to encourage lending by lowering the rate it pays banks for excess reserves they hold at the Fed.
Bernanke said unusually weak household spending and persistent financial strains spurred by worry over Europe's sovereign debt crisis and the loss of Washington's top-tier credit rating continue to haunt the recovery.
He also repeated a warning that overzealous belt-tightening by the U.S. government in the near term could also slow down the "erratic" rebound.
(Additional reporting, and writing, by Mark Felsenthal, Pedro Nicolaci da Costa, Kristina Cooke in New York, and Sakari Suoninen in Frankfurt; Editing by Dan Grebler and Diane Craft)