Bernanke raises inflation concern

It remains unclear which direction interest rates will head

Ben Bernanke, the head of the Federal Reserve, has warned of the impact of continuing inflation on the US economy.

"A failure of inflation to moderate as expected would be especially troublesome", said Mr Bernanke during a speech in New York.

But he gave no indication of interest rates changes and pointed to a cooling housing market hampering growth.

The speech followed data showing a sharp drop in durable goods orders, indicating a manufacturing slowdown.

October's 8.3% fall marked the biggest monthly drop since 2000.

Rate cut hope

Mr Bernanke said that, while inflation is tipped to slow, "substantial uncertainties" remain and core inflation - which includes energy and food is still "uncomfortably high".

The remarks made to the National Italian American Foundation in New York, are the most extensive that Mr Bernanke has given since the summer, when the Federal Reserve decided to maintain interest rates at 5.25%.

"I think he offered a message of some optimism on the US economy but acknowledged the wide uncertainty that exists in things that could go wrong," said Stuart Hoffman, chief economist at PMC Financial Services.

The speech made no indication of which way interest rates - which have remained unchanged since August - would go.

Mr Bernanke reiterated that the Federal Reserve would still consider raising rates in future if necessary.

Some economists have been hoping that signs that the US economy is cooling could prompt a rate cut.

This would reverse the pattern that saw the Fed raise interest rates 17 times in a row, by a quarter of a percentage point, to 5.25% in August.

The speech by Mr Bernanke comes as a report from the Organisation for Economic Cooperation and Development (OECD) showed world economic growth slowing to its weakest level in four years in 2007.