Federal Reserve Chairman Ben S. Bernanke signaled last night that the series of interest rates have come to an end for now and raised his biggest concerns yet about the inflationary effects of the dollar's 16 per cent drop in the past year against the euro.
The Fed is working with the Treasury to "carefully monitor developments in foreign exchange markets" and is aware of the effect of the dollar's decline on inflation and price expectations, Mr Bernanke said last night in his first speech on the economic outlook in two months.
In addition, interest rates are "well positioned" to promote growth and stable prices, he said.
Mr Bernanke's comments are a shift from past remarks by Fed officials that have highlighted both the spur to exports from a cheaper dollar and the pressure it puts on import prices.
The dollar climbed after the speech indicated exchange rates will be a consideration in setting rates.
Investors anticipate the central bank will keep its benchmark rate at 2 per cent this month after 3.25 percentage points of cuts since September, futures prices show.
Mr Bernanke (54) spoke via satellite to the International Monetary Conference in Barcelona.
European Central Bank President Jean-Claude Trichet also spoke at the event, where he reiterated that "monetary policy stays firmly focused on delivering price stability."
"For now, policy seems well positioned to promote moderate growth and price stability over time," Mr Bernanke said. "We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate."