Bernanke: Fed watching credit, inflation

WASHINGTON, Nov. 8 (UPI) -- The U.S. Federal Reserve is keeping an eye on the subprime mortgage crisis and soaring oil prices, Fed Chairman Ben Bernanke told a joint congressional panel.

Bernanke, speaking before the Joint Economic Committee Thursday, warned lawmakers that higher inflation and weaker economic growth could be in store, but said the Fed expected the U.S. economy to grow at a moderate pace.

"Overall, the committee expected that the growth of economic activity would slow noticeably in the fourth quarter from its third-quarter rate," Bernanke said in remarks distributed before his testimony. "Growth was seen as remaining sluggish during the first part of next year, then strengthening as the effects of tighter credit and the housing correction began to wane."

Increases recently in crude oil prices likely will increase inflation in the near-term and potentially the longer run as well, Bernanke said.

Volatility and strains on the financial market "have persisted" since the Fed instituted two interest rate cuts in September and October. However, Bernanke said recent economic data "suggest the overall economy remained resilient in recent months."

Bernanke warned that subprime mortgage delinquencies likely will rise, but that the Fed will work with community groups to help borrowers avoid foreclosure.