June Stock Talk I

WASHINGTON — The Federal Reserve chairman, Ben S. Bernanke, signaled on Tuesday that further interest rate cuts were unlikely because of concerns about inflation.

High oil prices are a double-edged sword that can both put a damper on already weak growth and spread inflation, he said.

Mr. Bernanke, in remarks delivered via satellite to an international monetary conference in Barcelona, Spain, said that the Fed’s powerful doses of rate reductions, which started in September, along with the government’s $168 billion stimulus package, including rebates for people and tax breaks for businesses, should bring about “somewhat better economic conditions” in the second half of this year.

To help brace the economy, the Fed in late April dropped its key rate to 2 percent, a nearly four-year low, but hinted that could be the last reduction for a while. Mr. Bernanke drove that point home again on Tuesday.

“For now policy seems well positioned to promote moderate growth and price stability over time,” he said.

The Fed’s juggling act has become harder. It is trying to right a wobbly economy without aggravating inflation.

Many economists believe the Fed will hold rates steady at its next meeting in late June and probably through much, if not all, of this year. A few believe that inflation could flare up and force the Fed to begin increasing rates near the end of this year.

But Mr. Bernanke suggested that leaving rates at their current levels should be sufficient to accomplish the Fed’s twin goals of nurturing economic growth while preventing inflation from taking off.

Economic growth in the current quarter, he acknowledged, is “likely to be relatively weak.” Even as he reiterated the Fed’s hope for a pickup in growth in the second half of this year and into 2009, Mr. Bernanke said the economy continued to battle against negative forces — a housing slump, credit problems and fragile financial markets.

Until the slumping housing market and falling home prices show “clearer signs of stabilization,” there will continue to be threats to improved economic growth, he said. Moreover, recent increases in oil prices pose “additional downside risks to growth,” he said.

At the same time, if already lofty oil prices, now above $124 a barrel, continue to rise, that could worsen inflation, Mr. Bernanke warned.

The Fed’s aggressive rate-cutting campaign has contributed to a lower value for the dollar. That, in turn, has helped push up the prices for imported goods flowing into the United States and fueled a rise in consumer prices. Mr. Bernanke called that development “unwelcome.” He said the Fed was “attentive to the implications of changes in the value of the dollar for inflation and inflation expectations.”

During a question-and-answer session, Mr. Bernanke called the dollar’s impact on the rise in commodity prices “relatively modest” and said that global supply and demand were more important factors driving up energy prices and other prices. Still, the “weaker dollar does have inflationary impact,” and the Fed is attuned to that, he said.