The US Federal Reserve chairman Mr Alan Greenspan has warned that "imbalances" have emerged in the US economy and suggested that "modest action" is needed to pre-empt inflation.

"When we can be pre-emptive we should be, because modest pre-emptive actions can obviate the need for more drastic actions at a later date," he said in testimony before the Joint Economic Committee of Congress.

His unusually direct remarks were taken as the clearest signal yet that the Fed's policy-making open market committee (FOMC) will likely raise interest rates by a quarter point to 5 per cent at its meeting on June 29th and 30th and could well follow up with additional rate increases in the short term.