Fed chief says economic outlook has improved, fueling rate-hike prospects

Federal Reserve Chairman Ben S. Bernanke said Monday that the U.S. economic outlook had improved from a month ago and that central bankers would “strongly resist” any waning of public confidence in stable prices.

“The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,” Bernanke said in remarks to a Boston Fed conference in Massachusetts. “The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations.”

Bernanke’s remarks may reinforce investors’ expectations that the central bank will begin raising interest rates by year-end to contain increases in consumer prices. Although the Fed chief said that risks to growth were still to the “downside,” he added that federal tax rebates, past rate cuts and record exports should underpin growth.

Traders anticipate the Open Market Committee will keep its benchmark rate at 2% this month and raise it as soon as September, futures prices indicate.

Fed officials next meet June 24-25.