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Last Updated: Monday, 5 June 2006, 19:32 GMT 20:32 UK
Bernanke voices inflation fears
Fed chief Ben Bernanke
Mr Bernanke has vowed the Fed will be "vigilant" about inflation
Despite a slowdown in the economy the US Federal Reserve may have to raise rates to keep inflation under control, chairman Ben Bernanke has warned.

Great care needed to be taken over future rate decisions as the US economy was entering a "period of transition".

Mr Bernanke said that recent increases in inflation - triggered by rising fuel prices - were an unwelcome development.

Experts fear any further rate rise to rein in inflation could curtail economic growth.

Inflation had "reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth," Mr Bernanke told a forum of global bankers.

To combat inflation, the Fed has raised rates 16 times since June 2004 to their current level of 5%.

Expansion cooling

Mr Bernanke also told the forum that the Fed's next rate decision, later this month, would rely heavily on how measures of economic activity and inflation looked.

Recent data showing weak growth and high prices has triggered fears that the US could now be suffering from "stagflation" - low growth coupled with high inflation.

Earlier on Monday, the latest sign that US expansion may be cooling came from figures that showed the growth in the service sector had slowed.

Meanwhile, over the past three months consumer price inflation has risen to 3%.

Elsewhere, wage growth has slowed, as has consumer spending, while unemployment benefit claims are increasing.

"These developments are consistent with the softening in the pace of overall economic activity that seems to be under way," Mr Bernanke said.

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