Fed Ready To Act, But Bernanke Gives Few Clues On Plans

With economic growth "less vigorous than we would like," Federal Reserve chief Ben Bernanke said Friday that the central bank stands ready to do more to bolster hiring and counter deflation risks.

But he didn't give details about Fed plans to buy more Treasuries and other assets to keep borrowing costs low and spur demand for cars, homes and other goods.

Bernanke did note "the costs and limitations" of unconventional policy, suggesting the Fed may not go for a shock-and-awe strategy.

The dollar and Treasury yields rose modestly on his comments, though they are still down sharply since the Fed signaled Sept. 21 that more easing loomed. Equity investors seemed to focus on Google (GOOG) and GE (GE) earnings and big banks' foreclosure woes.

The central bank has already cut rates to zero and bought $1.7 billion in securities, but GDP growth has steadily slowed over the past three quarters. Though some policymakers oppose the idea, analysts expect the Fed to decide at its Nov. 2-3 meeting to buy up to $1 trillion in assets.

Policymakers are "prepared to provide additional accommodation" to pursue their dual mandate of promoting maximum employment and stable prices, Bernanke told a Boston Fed conference.

Unemployment will fall "only slowly" from a near-26-year high of 9.6%, he said, noting that the risk of deflation — a downward spiral of prices that hurts profits and discourages spending — is "higher than desirable."

His comments came as the Labor Department reported a 0.1% rise in September consumer prices, the smallest gain in four months.

Core costs, which exclude food and energy, were flat. Core CPI rose just 0.8% from a year ago, the smallest increase in 49 years.

On a positive note, the New York Fed's Empire State manufacturing index, an early gauge of monthly activity, jumped 11.63 points in October to 15.73. Wall Street had expected a slim rise to 5.75. Readings above zero indicate growth.

Also, September retail sales rose 0.6%, the Commerce Department said Friday, beating forecasts. August sales were revised higher.

But continued gains are at risk, Bernanke said.

"Prolonged high unemployment would pose a risk to consumer spending and hence to the sustainability of the recovery," he said.

The Reuters-UMich consumer confidence index unexpectedly fell 0.6 point to 67.9. The expectations gauge did rise, though.

The Economic Optimism Index released Oct. 12 hit a five-month high on hopes that the Nov. 2 elections will lead to a change in Washington.

Confidence is only loosely tied to spending. September's retail gains were broad-based. Autos and parts led with a 1.6% gain. But other sales rose 0.4% on demand for furniture, electronics and appliances.

"Depressed consumers seem to be drowning their sorrows at the malls," Joel Naroff, president of Naroff Economic Advisors, wrote in a note.

Yet improved data likely won't deter the Fed, analysts said.

"This does not, however, obviate the Fed's inclination to ease further," said Richard DeKaser, chief economist at Woodley Park Research. "The Fed's principal motivation at this time is its concern about deflation."