WASHINGTON, June 10, 2008 (AFP) – Federal Reserve chairman Ben Bernanke said Monday the likelihood of a severe US economic slump has diminished, while “upside risks” to inflation are forcing the Fed to be more vigilant. Bernanke said the policymaking Federal Open Market Committee “will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation.” The comments appeared to reinforce indications from Bernanke and other Fed members that the central bank is unlikely to cut interest rates further even in the face of weak economic conditions.
Bernanke, speaking at a forum sponsored by the Boston Fed, suggested the economy appears to be on the mend even if conditions are fragile, as evidenced by the jump in unemployment to 5.5 percent reported last week.
“Despite the unwelcome rise in the unemployment rate that was reported last week, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,” said Bernanke.
“Over the remainder of 2008, the effects of monetary and fiscal stimulus, a gradual ebbing of the drag from residential construction, further progress