Bernanke: Fed 'alert' and 'flexible'

Federal Reserve Chairman Ben Bernanke

NEW YORK (CNNMoney.com) -- Federal Reserve Chairman Ben Bernanke said Thursday that the central bank remains concerned about consumer spending strength and problems in the financial markets and will stay "alert and flexible" leading up to its next meeting on Dec. 11.

Addressing the Charlotte Chamber of Commerce in North Carolina, the central bank chief spoke candidly about developments since policymakers last met in October, but hedged whether the Fed would continue its interest rate cutting campaign.

"We at the Federal Reserve will have to remain exceptionally alert and flexible as we continue to assess how best to promote sustainable economic growth and price stability in the United States," Bernanke said in prepared remarks.

Those words echoed remarks issued a day earlier by the Federal Reserve's No. 2 official, Donald Kohn, who said that the central bank needed to remain "nimble" and that it can't risk a threat to the economy just to teach market speculators a lesson.

Major indexes soared Wednesday after investors interpreted Kohn's remarks to mean that the central bank will continue to cut interest rates when policymakers convene in December.

Futures markets are betting with certainty that the Fed will cut interest rates by at least a quarter percentage point at next month's meeting. The fed funds rate, a key bank lending rate, stands at 4.5 percent.

At its last two meetings, the central bank lowered the federal funds rate - a quarter percentage point in late October and half a percentage point in mid-September.

Bernanke added that the labor market remained "solid" and that core inflation was "moderate." But he noted the inflation risk posed by sky-high oil prices, which have hovered near $100 a barrel, as well as higher prices for food and imported goods.

He said that he expected household income and spending to grow, but added that higher gas prices, ongoing weakness in the housing market and tighter credit conditions would "create some headwinds for the consumer in the months ahead."

Financial markets would also be closely watched for signs that they are affecting the broader economy, Bernanke said.

All of which is posing a challenging task for central bank officials, said Bernanke.

"Economic forecasting is always difficult, but the current stresses in financial markets make the uncertainty surrounding the outlook even greater than usual," said Bernanke.

The central bank will have plenty of economic numbers to digest in the two weeks leading up to its next policy meeting. On the slate for Friday's session are readings on personal income and spending, as well as the core PCE reading, which measures prices paid by consumers for items other than food and energy. Next week will bring the highly anticipated November jobs report.