updated 6/9/2006 12:39:28 PM ET 2006-06-09T16:39:28

America’s strong productivity has been bolstered not only by the greater use of computers and other technologies but also by the economy’s flexibility, Federal Reserve Chairman Ben Bernanke said Friday.

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Those were some of the explanations the Fed chief offered to explain why productivity since 1995 has been growing at a significantly faster rate than it had in the previous two decades, when efficiency gains had been relatively sluggish.

“The current productivity revival still has some legs, as the full economic benefits of recent technological changes have not yet been completely realized,” Bernanke said. “This productivity revival augurs well for the future of the U.S. economy.”

The Fed chief’s remarks came in a commencement address to students at the Massachusetts Institute of Technology, where Bernanke earned his Ph.D. in economics in 1979.

Productivity — the amount an employee produces for every hour on the job — is a key ingredient to the economy’s long term vitality. Efficiency gains allow the economy to grow faster without igniting inflation. Companies can pay workers more without raising prices, which would cut into those wage gains.

Flexibility — such as in the labor force — where companies can easily add or shed workers when needed — has helped the country’s overall productivity performance, Bernanke said. So has America’s competitive and entrepreneurial spirit, he added.

Productivity rose by 2.7 percent in 2005. That was down from the 3.4 percent performance of 2004 but still marked a decent showing.

Looking ahead, one possible drag on technological innovation in the United States is the “relatively poor performance of our K-12 educational system in stimulating interest in and providing solid training in the sciences,” Bernanke warned.

On a more philosophical bent, Bernanke told the graduates that when embarking on their professional careers to “not be afraid to be unconventional” and “remember that it is OK to fail.”

Bernanke, who took over the Fed helm in February after longtime chairman Alan Greenspan retired, did not talk about the future course of interest rates.

However, in a speech that jolted financial markets around the world, Bernanke on Monday issued a stern warning against inflation. He called rising inflation unwelcome and pledged to take necessary action to prevent inflation from spreading through the economy. Investors and economists viewed that as a strong signal that interest rates will move higher later this month.

Over the two years, the Fed has boosted interest rates 16 times, each in quarter-point moves. Another quarter-point bump up in the Fed’s key rate to 5.25 percent is now expected at the Fed’s next meeting, June 28-29. Rates may continue to rise, depending on how inflation unfolds.

Surging prices for gasoline, other energy products and for raw materials have raised questions among Fed officials and private economists about the degree to which this trend could worsen overall inflation.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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