The US economy is poised to expand at a moderate rate and uncomfortably high core inflation should ease, but price risks are tilted mostly to the upside, Federal Reserve chairman Ben Bernanke said on Tuesday. Over the next year or so, the economy appears likely to expand at a moderate rate, close to or modestly below the economys long-run sustainable pace, he said at a luncheon sponsored by the National Italian American Foundation. Core inflation is expected to slow gradually from its recent level, Bernanke said. Still, he added, the risks to the (inflation) forecast seem primarily to the upside. Given the current level of inflation, a failure of inflation to moderate as expected would be especially troublesome, Bernanke said. US Treasury debt prices fell and stocks trimmed gains as financial markets took the speech as a sign the Fed is not close to cutting interest rates as it remains focused on ensuring inflation pressures abate.
There is no daylight within his statement to indicate any hint of a rate cut, said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co in New York. It seems the Fed is taking no chances with respect to the gains it has made in fighting inflation and is making tough talk in the face of a decline of inflation expectations and slower growth."