WASHINGTON, Feb 16 (AFP): New Federal Reserve chief Ben Bernanke said yesterday the US economic expansion remains "on track" and that interest rates may have to rise, but declined to tip his hand on monetary policy actions.
In his first congressional appearance as head of the central bank, Bernanke appeared to hold to the script of the central bank set by his predecessor Alan Greenspan, who stepped down January 31 after 18 years.
Bernanke said the economy remains solid despite a weak pace of expansion in the fourth quarter. He stated that any future rate actions "will be increasingly dependent on incoming data."
"The most recent evidence ... suggests that the economic expansion remains on track," Bernanke said.
Higher energy prices could spill over into wider price inflation, Bernanke said and some areas of the economy could "overshoot" a sustainable path.
The market was looking for clues about how far Bernanke would lift the federal funds rate, currently at 4.5 per cent, after 14 straight increases. Most analysts expect at least one additional quarter-point hike, and many expect two.
The tone of Bernanke's message was "rather hawkish," said Marie-Pierre Ripert at IXIS Corporate and Investment Bank.
Despite the qualifiers, Ripert said "his comments suggest further tightening: the probability of a new rate hike in March is very high and another one in May seems more and more likely."
Economist Stephen Gallagher at Societe Generale disagreed, saying the new Fed chief gave a more neutral assessment on monetary policy.
"Bernanke states that no one or no small set of indicators can be reliable for setting policy, and a painstaking examination of a broad range of data must be considered," Gallagher said.
Gallagher said one or two additional moves by the Fed are possible, but discounted the possibility of sharply higher rates.
The Fed report presented to Congress forecast real economic growth of 3.5 per cent in 2006 and for core inflation to rise 2.0 per cent. The inflation forecast is at the top of the Fed's "comfort zone," according to economists.