(RTTNews) - Calling the current policy and economic environment “one of the most challenging” in recent memory, Federal Reserve Chairman Ben Bernanke delivered slightly dovish remarks at the Federal Reserve Bank of Kansas City’s Annual Economic Symposium in Jackson Hole, Wyoming on Friday.

“Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment.” Bernanke said. “Add to this mix a jump in inflation, in part the product of a global commodity boom, and the result has been one of the most challenging economic and policy environments in memory.”

Inflation seems to have taken a backseat to the economic strains, Bernanke said, noting for the first time the recent decline in commodity prices. Crude oil, in particular, is down more than $25 a barrel from its record high of $147 a barrel, although recent supply concerns have sent it back above $120 a barrel.

Should commodity prices continue their decline, Bernanke said that inflation should “moderate later this year and next year.” He added that the outlook “remains highly uncertain,” and said that the FOMC is solidly committed to price stability and “will act as necessary to attain that objective.”

He said that these recent decline in commodity prices along with the stabilization of the dollar has been “encouraging.”
Bernanke appeared concerned about the economic outlook, citing it as the reason for an accommodative monetary policy.

“In view of the weakening outlook and the downside risks to growth, the Federal Open Market Committee has maintained a relatively low target for the federal funds rate despite an increase in inflationary pressures,” Bernanke said.

The Fed chairman continued his staunch defense of the Federal Reserve’s unprecedented action in March to save investment giant Bear Stearns by facilitating its sale to JPMorgan (JPM). However, he acknowledged that the Federal Reserve must address the sticky problem of “too big to fail,” which could possibly result in “excessive risk-taking and yet greater systemic risk in the future.”

Bernanke outlined a series of suggestions to strengthen the market, specifically a stronger infrastructure.

“A stronger infrastructure would help to reduce systemic risk,” Bernanke said. “Importantly, as my FOMC colleague Gary Stern has pointed out, it would also mitigate moral hazard and the problem of ‘too big to fail’ by reducing the range of circumstances in which systemic stability concerns might be expected by markets to prompt government intervention.”

Bernanke also stressed the importance of increasing focus on financial regulation and supervision.

“The Federal Reserve will continue to work with the Congress, other regulators, and the private sector to explore this and other strategies to increase financial stability,” he concluded.

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