KEY POINTS:
Federal Reserve Chairman Ben Bernanke today said the US central bank will act as needed to ensure beleaguered housing and credit markets do not further undermine an already sluggish economy.
"It is important to recognise that downside risks to growth remain," Bernanke said in testimony prepared for delivery the House of Representatives' Financial Services Committee.
"The (Fed) will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," he said.
The Fed has lowered benchmark overnight interest rates to 3 per cent from 5.25 per cent since mid-September and financial markets expect policy-makers to lower them by a further half-percentage point at their next meeting on March 18.
While Bernanke said it was "important" to recognise that downside risks to growth remain, he also said the Fed had to keep a close watch on prices.
He said that while the central bank expects inflation to moderate as high energy and commodity costs recede, there was a risk price pressures could remain elevated.
If the public began to doubt the Fed's willingness to take measures to keep inflation at bay, it could hurt the central bank's ability to support growth, he added.
"The further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month," he said.
"Any tendency of inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and could reduce the flexibility of the (Fed) to counter shortfalls of growth in the future," Bernanke added.
- REUTERS
