Taking into account the mind-sets of both the public and investors about where prices are headed is a key factor for policymakers working to tame inflation, Federal Reserve Chairman Ben Bernanke said Tuesday.

"Undoubtedly, the state of inflation expectations greatly influences actual inflation and thus the central bank's ability to achieve price stability," Bernanke said in a mostly academic speech to a conference of the National Bureau of Economic Research.

If investors, consumers and businesses feel confident that the Fed will keep prices stable, the Fed chief suggested, they may be less inclined to act in ways that could aggravate inflation. Bernanke also said that these groups may be less inclined in such circumstances to worry that inflation will eat away at investments and paychecks, and might feel better about longer-term financial planning.

A copy of Bernanke's remarks in Cambridge, Mass., was made available in Washington.

"Experience suggests that high and persistent inflation undermines public confidence in the economy and in the management of economic policy generally," he said.

This scenario has "potential adverse effects on risk-taking, investment and other productive activities that are sensitive to the public's assessments of the prospects for future economic stability," Bernanke added.

Stable inflation is good not only for the economy but for the pocketbook. Out-of-control prices can eat away at paychecks, investments and standards of living. And, getting it under control through interest rate increases can be difficult and painful.

In his remarks, the Fed chief didn't say anything specific about the future course of interest rates in the United States.

The Fed's key interest rate has held steady at 5.25 percent for just over a year. Before that, the Fed had pushed rates up for two years to fend off inflation. It had marked the longest stretch of rate increases in the central bank's history.

Bernanke also didn't discuss the current inflation climate.

However, at the Fed's last meeting on June 27-28, Bernanke and his central bank colleagues noted that although there have been some improvement in recent inflation barometers, they were not ready to declare victory against inflation.

At that time, the Fed noted that readings on core inflation — which excludes energy and food prices — have "improved modestly in recent months." But the Fed added: "However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated." Fed policymakers continued to identify the biggest risk to the economy was if inflation failed to recede as they anticipated.

Even so, most economists believe the Fed will keep rates where they are for the rest of this year.

Bernanke's remarks touched on the challenges of measuring so-called inflation expectations of the public and investors

"A deeper understanding of the determinants and effects of the public's expectations of inflation could have significant practical payoffs," he said, saying additional research into this matter would be welcomed.

"If the public experiences a spell of inflation higher than their long-run expectation, but their long-run expectation of inflation changes little as a result, then inflation expectations are well anchored," he said.

"If, on the other hand, the public reacts to a short period of higher-than-expected inflation by marking up their long-run expectation considerably, then expectations are poorly anchored, he explained.

The Fed chief also went into detail about the various ways the Fed comes up with short-term and long-term inflation forecasts.

Over the years, the Fed has done a good job in keeping inflation stable. That in turn has helped the country's economy be less affected by price shocks, such as big jumps in the cost of oil, Bernanke said.