Fed Chief Keeps Close Eye On Inflation

Federal Reserve Chairman Ben Bernanke, warning Congress of a period of sluggish business growth, sent a fresh signal Wednesday that the central bank will again lower interest rates to steady the teetering economy.

Bernanke said since last summer, the credit crunch and housing slump have both worsened and that the job market has weakened.

"The economic situation has become distinctly less favorable" since the summer, the Fed chief told the House Financial Services Committee.

He acknowledged that inflation also must be watched, given the recent run-up in the prices of energy and other items.

"Should high rates of overall inflation persist, the possibility also exists that inflation expectations could become less well anchored," Bernanke said.

The Fed started lowering interest rates last September and has been much more aggressive in cutting recently.

Right now, the growing consensus is that the Fed will cut interest rates by another half a percentage point when policymakers meet again on March 18.