Federal Reserve Chairman Ben Bernanke has signaled that interest rate cuts may be over for now. In remarks to an international monetary conference, Bernanke said that inflation has become a worry.
The Fed chairman said that high oil prices are a doubled-edged sword that can both put a damper on already weak growth and spread inflation.
The central bank's rate reductions, which began last September, along with the government's $168 billion dollar stimulus package, should bring about somewhat better economic conditions in the second half of the year, Bernanke said.
"For now policy seems well positioned to promote moderate growth and price stability over time," Bernanke said via satellite, speaking to an international monetary conference in Spain.
Last month, the Fed dropped its key rate to 2 percent, nearly a four-year low.
Many economists believe the Fed will hold rates steady at its next meeting June 24-25 and probably through much, if not all, of this year. A few believe that inflation could flare up and force the Fed to begin boosting rates near the end of this year.
The Fed's aggressive rate-cutting campaign has contributed to a lower value of the U.S. dollar. That, in turn, has helped to push up the prices for imported goods flowing into the United States and fueled a rise in consumer prices. Bernanke called that development "unwelcome." He said the Fed is "attentive to the implications of changes in the value of the dollar for inflation and inflation expectations."
"Inflation has remained high," he said. "The possibility that commodity prices will continue to rise is an important risk to the inflation forecast," he said.
During a question-and-answer session, Bernanke called the dollar's impact on the rise in commodity prices "relatively modest" and said that global supply and demand conditions were more important factors driving up energy and other prices. Still, the "weaker dollar does have inflationary impact" and the Fed is attuned to that, he said.
The economy grew at a weak 0.9 percent pace in the first three months of this year, slightly better than the prior quarter, but still considered subpar. The sluggishness comes as employers have cut jobs, and consumers, hit by housing and credit troubles, are watching their spending much more closely.
Businesses, too, are facing challenges, including rapidly escalating costs of raw materials and weaker demand from U.S. consumers, Bernanke said.
From NPR reports and The Associated Press.
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