U.S. Federal Reserve (Fed) Chairman Ben Bernanke said on Wednesday that the U.S. economy has snapped smartly out of an end-of-year lull although inflation and other risks remain.
Delivering his first semiannual economic report to the U.S. Congress, the new Fed chairman said that recent economic barometers on jobs, production, retail sales and other business activity "suggests that the economic expansion remains on track."
The U.S. economy increased by an anemic rate of just 1.1 percent in the final quarter of last year, the slowest in three years resulting partly from the soaring oil prices.
On the U.S. economic outlook in the coming two years, Bernanke said that the central tendency of the forecasts of Fed governors is for real GDP to increase about 3.5 percent in 2006 and 3 percent to 3.5 percent in 2007. The civilian unemployment rate is expected to finish both 2006 and 2007 at a level between 4.75 percent and 5 percent. Inflation, as measured by the price index for personal consumption expenditures excluding food and energy, is predicted to be about 2 percent this year and 1.75 percent to 2 percent next year.
"While considerable uncertainty surrounds any economic forecast extending nearly two years, I am comfortable with these projections", he said in a prepared testimony to the Financial Services Committee of the U.S. House of Representatives.
The new Fed chairman also left the door open to higher interest rates in the future.
In coming quarters, the Fed "will have to make ongoing, provisional judgments about the risks to both inflation and growth, and monetary policy actions will be increasingly dependent on incoming data," Bernanke said.
At its last policy-making meeting in January, the U.S. Fed raised the federal funds rate to 4.50 percent, the highest in nearly five years to fend off inflation. It marked the 14th increase since the Fed began to tighten credit in June 2004.
Bernanke was sworn in as the new Fed chairman on February 1 to replace Alan Greenspan who finished his job of more than 18 years as Fed chairman on January 31.