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US Fed issues inflation warning | |
(about 3 hours later) | |
Federal Reserve chairman Ben Bernanke has warned that inflation is still too high in the US. | |
Inflation is "above what we would consider price stability", he told the Washington-based Economics Club. | |
However Mr Bernanke gave no indication whether interest rates would be raised further. A housing market correction would continue to dent growth, he said. | |
Figures released earlier on Wednesday highlighted a slowdown in the services sector, a driver behind the economy. | |
'Watching carefully' | |
In his address to the club focusing on long-term trends in the US economy, Mr Bernanke warned that entitlement schemes - including Medicare and Social Security - needed to be significantly overhauled. | |
Such programmes were underfunded - and if not reformed - could create a significant fiscal burdens for future generations. | |
We have to watch [inflation] very carefully to make sure it does not rise or even remain where it is Ben Bernanke, Fed chairman | |
In answering questions after the speech, the Fed chairman said the current housing slowdown could wipe around one percentage point US growth in the second half of 2006. | |
However he added that inflation remained a concern: "It is something we have to watch very carefully to make sure it does not rise or even remain where it is." | |
After raising interest rates 17 times in a row, by a quarter of a percentage point, the Fed decided in August to keep it steady at 5.25%. | |
Some analysts now feel signs of a slowing economy means the Fed will pause before raising rates again. | |
US growth has slowed to 2.6% a year, from 5.6% in the first quarter of 2006. | US growth has slowed to 2.6% a year, from 5.6% in the first quarter of 2006. |
'Losing momentum' | |
Such evidence of slower growth was evident in figures released Wednesday from the Institute for Supply Management (ISM), which saw its non-manufacturing index fall to its lowest level since April 2003, albeit still indicating growth. | |
The services sector covers everything from shops and restaurants to airlines and banks, and accounts for 80% of US economic activity. | |
News of the slackening-off in services came as the US government unveiled data for August factory orders which showed no change from the month before. | |
The ISM's manufacturing index had earlier in the week indicated slowing growth in the manufacturing sector. | The ISM's manufacturing index had earlier in the week indicated slowing growth in the manufacturing sector. |
"This tells us what we already knew about the economy - at least the services side - that generally it is losing momentum as we move into the fourth quarter," said Hugh Johnson, chief investment officer with Johnson Ellington Advisors. | "This tells us what we already knew about the economy - at least the services side - that generally it is losing momentum as we move into the fourth quarter," said Hugh Johnson, chief investment officer with Johnson Ellington Advisors. |
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