Fed chief cites threat of inflation

Federal Reserve Chairman Ben S. Bernanke has moved inflation up on his list of worries, suggesting more pointedly than ever that the time for cutting interest rates is over in view of soaring oil and commodity prices and a weakened dollar.

Although the country’s economic growth -- bruised by housing and credit debacles -- is still fragile, Bernanke on Tuesday expressed hope for some improvement in the second half of this year.

At the same time, he sounded a notably louder warning against inflation threats. To this end, he raised his biggest public concern to date about the slide in the U.S. dollar, saying it had contributed to an “unwelcome rise” in inflation.

The central bank chief delivered his remarks via satellite to a monetary conference in Spain.

In response to a question, Bernanke called the dollar’s effect on the rise in commodity prices “relatively modest” and said that global supply and demand conditions were more important factors in driving up energy and other prices. Still, the “weaker dollar does have inflationary impact” and the Fed is attuned to that, he added.

The Fed is continuing to “carefully monitor developments in foreign-exchange markets,” he said.

After Bernanke’s remarks, the dollar -- which has fallen sharply against the euro in the last year -- gained some muscle.

The Fed chief’s fresh assessment appeared to mark a subtle shift in his views of the risks facing the economy.

“Bernanke has inflation on the brain,” said Richard Yamarone, an economist at Argus Research.

Despite the rising inflation concerns, Bernanke signaled that the Fed was inclined to leave interest rates where they were for now. Boosting them could worsen the economy’s delicate state.

Some analysts said Bernanke might be taking a baby step toward laying the foundation for an eventual rise in rates -- possibly this year or early next year -- if inflation were to flash signs of getting dangerously out of hand.

At its last interest-rate meeting in late April, the Fed trimmed its benchmark rate to 2%, a nearly four-year low, extending a rate-cutting campaign that started in September.

The Fed’s next meeting is set for June 24-25.