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Dow plunges as Bernanke hints of hikes

Fed chief decries recent rise in inflation, vows to fight it

WASHINGTON -- Wall Street gulped and stocks plunged yesterday after Federal Reserve chairman Ben Bernanke decried recent increases in inflation and pledged action if necessary to make sure surging energy prices don't make things worse.

If the Federal Reserve follows through, that probably will mean higher interest rates, just when investors thought the Fed was about finished with its two-year rate-raising campaign.

For millions of Americans, rising borrowing costs would make it more expensive to buy a home or a car or to make other big-ticket purchases. It also would make payments more expensive on all the debt people have racked up -- from credit cards to loans for education, vacations, and other things.

On Wall Street, Bernanke's fresh inflation warning sent the Dow Jones industrials sliding 199.15 points to close at 11,048.72. It dropped even more, 214 points, two weeks ago on May 17.

Higher borrowing costs also will pinch Americans invested in stocks and bonds -- be it through their 401(k)s, mutual funds, or other investments.

Nationwide, inflation is still a big risk, even though the once-barreling economy is now slowing, the Fed chief said.

Bernanke offered his most extensive assessment of economic conditions -- he said the economy is ``in a period of transition" -- and the challenges facing Fed policymakers. He did not mention the possibility of the Fed's pausing in its two-year-old rate-raising campaign.

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