Commodity prices have risen significantly in terms of all major currencies, suggesting that changes in the foreign exchange value of the dollar are unlikely to have been an important driver of the increases seen in recent months.

The rate of pass-through from commodity price increases to broad indexes of U.S. consumer prices has been quite low in recent decades, partly reflecting the relatively small weight of materials inputs in total production costs as well as the stability of longer-term inflation expectations. Currently, the cost pressures from higher commodity prices are also being offset by the stability in unit labor costs. Thus, the most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation--an outlook consistent with the projections of both FOMC participants and most private forecasters.

As long as inflation expectations are managed pretty well, I think we’re going to get through this [period of elevated oil prices] without a big burst of inflation.

Well, as I've been saying, inflation in the mid -- between 1 and 2 seems fine to me; seems pretty close to price stability. There were those who were worried about inflation when it got down for several months below 1, and that was a legitimate concern. I think we've seen the bottom of core inflation. I think it's going to stabilize or head up from here.

To put it bluntly, with unemployment too high and inflation too low — and both forecasted to stay that way over the next two years — we have missed on both of our policy objectives. There is currently no policy conflict between improving the employment and inflation outcomes. This leads me to conclude that accommodative monetary policy continues to be beneficial for achieving each of these goals.

Overall, however, improving household and business confidence, accommodative monetary policy, and more-supportive financial conditions, including an apparent increase in the willingness of banks to make loans, seems likely to lead to a more rapid pace of economic recovery in 2011 than we saw last year.

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Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.

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On the inflation front, we have recently seen significant increases in some highly visible prices, notably for gasoline...  To assess underlying trends in inflation, economists also follow several alternative measures of inflation; one such measure is so-called core inflation, which excludes the more volatile food and energy components and therefore can be a better predictor of where overall inflation is headed. Core inflation was only 0.7 percent in 2010, compared with around 2-1/2 percent in 2007, the year before the recession began. Wage growth has slowed as well, with average hourly earnings increasing only 1.8 percent last year. These downward trends in wage and price inflation are not surprising, given the substantial slack in the economy.

Inflation is currently measured at lower-than-desired rates. A few months ago, fear of deflation was justified, but recently this concern has abated and the rate of inflation seems to have stabilized. Concern about inflation is rising because of higher gasoline prices and higher commodity prices, including food commodities. We are hearing stories that businesses incurring higher input costs may try to pass them through to retail prices. Higher input costs have not, however, translated to broad inflation of consumer goods and services. And, importantly, longer-term inflation expectations have stabilized in a healthy range. Through 2011 and 2012, I expect gradual firming of underlying inflation pressures from current very low levels to healthier levels.

I expect core inflation to remain below 2 percent over the next several years.

The downward trend in inflation during the recession had many commentators warning of the possibility of outright deflation. At this point, I think the risk of deflation is negligible.

60 Minutes: You seem to be saying that the recovery that we're experiencing now is not self-sustaining.

Bernanke: It may not be. It's very close to the border. It takes about two and a half percent growth just to keep unemployment stable. And that's about what we're getting. We're not very far from the level where the economy is not self-sustaining.

Some even worry that the economy might fall into a deflationary trap. I am not one of them.

The Fed’s price stability mandate is generally interpreted as maintaining an inflation rate of 2 percent, and 1 percent inflation is often considered to be too low relative to this stricture. I expect inflation to remain at about this level during the rest of this year. However, our Minneapolis forecasting model predicts that it will rise back into the more desirable 1.5-2 percent range in 2011.

Despite the weaker data seen recently, the preconditions for a pickup in growth in 2011 appear to remain in place. Monetary policy remains very accommodative, and financial conditions have become more supportive of growth, in part because a concerted effort by policymakers in Europe has reduced fears related to sovereign debts and the banking system there...

Although output growth should be stronger next year, resource slack and unemployment seem likely to decline only slowly. The prospect of high unemployment for a long period of time remains a central concern of policy. Not only does high unemployment, particularly long-term unemployment, impose heavy costs on the unemployed and their families and on society, but it also poses risks to the sustainability of the recovery itself through its effects on households' incomes and confidence...

Maintaining price stability is also a central concern of policy. Recently, inflation has declined to a level that is slightly below that which FOMC participants view as most conducive to a healthy economy in the long run. With inflation expectations reasonably stable and the economy growing, inflation should remain near current readings for some time before rising slowly toward levels more consistent with the Committee's objectives.

 Recent evidence I am seeing puts momentum on the side of disinflation, at least in the short run.

Inflation, the best we can measure it, has been running between 1 and 2 percent since early last year. Although some recent readings have come in below that range, I believe inflation is unlikely to stay that low. In fact, the public apparently expects higher inflation in the future, which suggests that policymakers will need to be careful to avoid waiting too long to raise rates.

Given my expectation of persistent and sizable slack in the economy, I expect both core and headline inflation rates to edge down further, falling to about 1 percent later this year and in 2011. This is below the 2 percent rate that I and most of my fellow Fed policymakers consider an appropriate long-term price stability objective.