U.S. Federal Reserve Chairman Ben Bernanke has repeated that the Fed is likely to hold rates steady for a while if slower economic growth nudges inflation lower this year and next as expected, The Washington Post reported Friday.

Testifying for a second day Thursday on Capital Hill, this time before the House Financial Services Committee, Bernanke rejected a Democratic lawmaker's suggestion that he considers cutting interest rates to bolster the economy.

But the Fed also thinks inflation is too high and might go higher, Bernanke said. If he and his colleagues adjust borrowing costs in coming months, they are more likely to raise rates than lower them.

Bernanke said he and his Fed colleagues see several risks that the economy may not behave as forecast, and they would adjust interest rates as needed.

One possibility is that the economy weakens more than expected, perhaps if the housing slump deepens. But the Fed sees a greater risk of high inflation.

Bernanke noted recent strong growth in consumer spending and incomes, "which suggests that the economy may be stronger than we think. It's possible."

If so, consumer demand might rise faster than the economy's ability to produce goods and services, he said. Already, the labor market is tight, with unemployment at a low 4.6 percent, and businesses' use of their production capacity is slightly above average.

The inflation risk lies in this danger of excessive demand, not in low unemployment alone, the Fed chief said.

On Wednesday, Bernanke told the Senate's Committee on Banking, Housing and Urban Affairs that the economy is likely to grow modestly this year and next and inflation will continue to ease.

He said real gross domestic product is projected by the central bank to grow about 2.5 percent to 3 percent in 2007 and about 2.75 percent to 3 percent in 2008. The unemployment rate is expected to finish both 2007 and 2008 around 4.5 percent to 4.75 percent.

Core inflation, as measured by the price index for personal consumption expenditures excluding food and energy, is expected to be 2 percent to 2.25 percent this year and edge lower, to 1.75 percent to 2 percent, next year, Bernanke said.

Source: Xinhua