Federal Reserve Chairman Ben Bernanke said today the central bank will act as needed to help the struggling US economy, but said the Fed has to be mindful that growth should pick up later in the year.
"The (Federal Open Market Committee) will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Mr Bernanke said in remarks prepared for delivery to the US Senate Banking Committee. The FOMC sets US monetary policy.
He said the outlook for the economy had worsened in recent months and risks to growth had picked up.
Mr Bernanke said he expects sluggish growth to give way to a somewhat stronger expansion later this year, with overall inflation moderating, and the Fed must consider the effects of fiscal and monetary stimulus in its policy-making.
"Our policy stance must be determined in light of the medium-term forecast for real activity and inflation, as well as the risks to that forecast," he said.
Mr Bernanke painted a somber picture of risks facing the economy. He said further cuts in homebuilding and related activities are likely, and said a softer jobs market, higher energy prices and falling home values could be expected to weigh on consumer spending in the near term.
At the same time, he noted that inflation had moved up as a result of soaring prices for oil and food and the weaker dollar, adding that inflation risks bear close watching.
"To date, inflation expectations appear to have remained reasonably well anchored, but any tendency of inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central bank's flexibility to counter shortfalls in growth in the future," he said.