Restoring financial market stability is a top priority for the US Federal Reserve as a weakening housing market, tighter credit and rising oil prices threaten the economy, Fed Chairman Ben Bernanke said today.
"Accurately assessing and appropriately balancing the risks to the outlook for growth and inflation is a significant challenge for monetary policy-makers," Mr Bernanke said in remarks prepared for delivery to the Senate Banking Committee.
"The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth. At the same time, upside risks to the inflation outlook have intensified lately."
Financial markets and institutions remain under "considerable stress," Mr Bernanke said.
His comments come just two days after the Treasury Department, in close coordination with the Federal Reserve, announced measures to aid mortgage finance companies Fannie Mae and Freddie Mac, which have been under pressure as the housing market deteriorated.
In its semi-annual monetary policy report to Congress, the Fed raised its projection for growth in 2008 to a range of 1 per cent to 1.6 per cent from a 0.3 per cent to 1.2 per cent range it forecast in April on expectations for stronger consumer spending.
In the face of costlier energy, the US central bank also raised its inflation forecast to a range of 3.8 per cent to 4.2 per cent, up substantially from its previous 3.1 per cent to 3.4 per cent projection.
Reuters