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Last Updated: Wednesday, 15 February 2006, 16:26 GMT
Fed's Bernanke sees price risks
Federal Reserve Chairman Bill Bernanke
Mr Bernanke is seen as a safe pair of hands by many investors
US Federal Reserve chairman Ben Bernanke has reiterated that inflation remains a risk to the economy, meaning interest rates may need to keep rising.

Giving his first testimony to Congress, Mr Bernanke said that despite problems such as high energy costs and a softer housing market growth was "on track".

He forecast that the economy would expand by about 3.5% this year, and between 3% and 3.5% in 2007.

Analysts said that they now expected interest rates to rise again in March.

'Steeply rising'

"I think it seems reasonably clear that there will be further tightening," said David Sloan, an economist at 4Cast in New York.

The Fed has been steadily increasing borrowing costs from a low of 1% to their current level of 4.5%, hiking rates 14 times since the current tightening cycle began in June 2004.

Its last increase came at the end of January.

He is establishing his credentials as an inflation hawk, which is of course what the global financial markets want to hear
Kathleen Camilli, Camilli Economics

After that meeting, the Fed's rate setting committee "judged that some further firming of monetary policy may be necessary, an assessment with which I concur", Mr Bernanke said.

"Steeply rising energy prices pushed up overall inflation, raised business costs, and squeezed household budgets."

Placing yet more stress on prices, Mr Bernanke said that the US economy was operating at "a relatively high level of resource utilization".

"He is obviously establishing his credentials as an inflation hawk, which is of course what the global financial markets want to hear," said Kathleen Camilli, president of Camilli Economics in New York.

Impressive performance

However, Mr Bernanke was not overly pessimistic.

"The US economy performed impressively in 2005," Mr Bernanke said. "Overall the financial health of households appears reasonably good."

Strengthening economic activity outside the US meant global growth seemed to be on a "good track", he said.

He forecast that price growth would be about 2% this year, and between 1.75% and 2% in 2007. The unemployment rate is set to hover just below 5%.

Mr Bernanke, who took over from Alan Greenspan - an 18-year veteran of the top job at the Fed - on 1 February, said that future interest rate decisions would be data-driven and based on the state of the economy.

"He talked directly about the Fed's forecasts, which Greenspan never did, and it is emblematic of his view that we have to make interest rate policies as easy to forecast as possible," said Eric Green of Countrywide Financial.

Mr Bernanke previously said he wants to develop a "strong relationship" with Congress.

He is himself a former Fed board member and economic adviser to President Bush.


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