Tuesday, June 06, 2006

Federal Reserve Chairman Ben S. Bernanke expressed more concern about rising inflation than the cooling U.S. economy yesterday, sending his strongest signal yet that interest rates are probably headed higher.

Stocks plunged after Bernanke vowed to combat the recent "unwelcome" pickup in inflation, even as he told an international bankers' conference that an economic slowdown "seems now to be underway."

Speaking to a conference here on international monetary issues with other central bankers, Mr. Bernanke said inflation had climbed to the upper limits of his acceptability.

"Core inflation, measured over the past three to six months, has reached a level that, if sustained, would be at or above the upper range that many economists, including myself, would consider consistent with price stability," Mr. Bernanke said.

Core inflation refers to the increase in prices for consumer goods and services other than food and energy, whose prices are more volatile and are considered not as important as others in determining whether inflation becomes embedded in the economy.

Mr. Bernanke has previously said that core inflation should ideally remain between 1 and 2 percent a year. In his speech, he noted that it had been running at 3 percent over the last six months and 2.3 percent over the last 12 months.

"These are unwelcome developments," the Fed chairman said.
More interest rate increases ahead.