Federal Reserve chairman Ben Bernanke told Congress today the US economy will grow gradually this year and gain steam in 2008, but warned there are many risks to the outlook and stressed the US central bank is on guard against inflation.
"Overall, the US economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy's underlying trend," he said in semi-annual testimony prepared for delivery to the House of Representatives Financial Services Committee.
But Mr Bernanke warned that a slowdown in the US housing market may last longer than anticipated, and said that further hikes in energy and commodity prices could spark inflation and push closely watched core inflation up.
The Fed chairman also cautioned that recent moderation in core inflation, while favourable, may be the result of temporary influences. While he said he expected core inflation to "edge a bit lower, on net" over the remainder of this year and next, he made clear that policy-makers were wary about price pressures.
"With the level of resource utilization relatively high and with a sustained moderation in inflation pressures yet to be convincingly demonstrated, the (Fed's policy panel) has consistently stated that upside risks to inflation are its predominant policy concern," he said.