Bernanke still worried about inflation
Fed chief tells Congress that the central bank remains vigilant, trying to protect economy from harm.
WASHINGTON (Reuters) -- Federal Reserve Chairman Ben Bernanke warned Wednesday stubbornly high inflation could harm the U.S. economy and that the U.S. central bank must guard against rising prices taking hold.
Bernanke said while the Fed was forecasting cooler economic growth and some moderation in inflation next year, the central bank remained worried about pricey oil and tight labor markets and the risk they might foster expectations for rising prices.
"Persistently higher inflation would erode the performance of the real economy and would be costly to reverse," Bernanke said in testimony prepared for delivery to the Senate Banking Committee. "The Federal Reserve must take account of these risks in making its policy decisions."
The Fed chief, who took office Feb. 1, issued the stern inflation warning as he presented the central bank's twice-yearly report on monetary policy and the economy.
He said the economy appeared to be "in a period of transition" to more moderate growth from a swift advance earlier in the year. He said this should gradually help ratchet down some of the price pressures the economy was facing.
Still, Bernanke said Fed officials must take other potential outcomes into account as they considered the appropriate level for U.S. interest rates.
"We must consider not only what appears to be the most likely outcome, but also the risks to that outlook and the costs that would be incurred should any of those risks be realized," he said.
The Fed has raised benchmark overnight borrowing costs to 5.25 percent in 17 small steps dating to June 2004.
Financial markets have been closely divided over whether an 18th consecutive increase will be in the offing at the Fed's next meeting on August 8.