Fed Eyes Dollar Drop, but Hews to Low-Rate Pledge

NEW YORK (Reuters) - Federal Reserve Chairman Ben Bernanke, in a rare comment on the U.S. dollar's value, on Monday acknowledged the currency's slump was causing some prices to rise, but said other factors restraining inflation were winning the day.

While showing he was not indifferent to the dollar's slide, Bernanke said tight credit and a weak job market would weigh on the economy's recovery, and he repeated the Fed's pledge to keep interest rates exceptionally low for "an extended period."

"We are attentive to implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability," he told the Economic Club of New York.

Bernanke said the central bank's commitment to its dual objectives, along with the strength of the U.S. economy, would help ensure that the dollar was strong and a source of global financial stability.

The dollar initially rose on his comments, but fell back later in the day, hitting a 15-month low against a basket of six major currencies. Gold prices hit record highs and oil prices settled up more than 3.0 percent as the dollar weakened.

A weaker dollar typically supports commodity prices because dollar-priced contracts -- such as those for oil and gold -- become cheaper for buyers using other currencies.

U.S. stocks rose broadly on Monday, sending indexes to 13-month closing highs, on reinforced expectations that interest rates would stay low for a long time.

The Fed slashed U.S. overnight rates to near zero in December to support a recovery from the deepest U.S. recession since the Great Depression.

"Bernanke just locked the Fed into an easy monetary policy, at least in the short term, so any implicit threat of response to dollar declines simply has zero credibility," said Stephen Stanley, U.S. economist at RBS.

Fed officials usually defer to the U.S. Treasury Secretary on issues relating to the dollar's value, although Bernanke has commented on the currency in the past.