Bernanke says Fed is watching inflation

ATLANTA, April 14 (UPI) -- U.S. Federal Reserve Chairman Ben Bernanke said the central bank would react quickly to tighten liquidity if the threat of inflation heats up in the future.

As the economy picks up steam, "liquidity that the Fed has put into the system could begin to pose an inflationary threat unless the FOMC acts to remove some of that liquidity and raise the federal funds rate," Bernanke said in a speech at Morehouse College in Atlanta Tuesday.

Bernanke said the threat of inflation has "occupied a significant portion of recent Federal Open Market Committee meetings" and that "tentative" signs of increased business activity have begun to emerge.

"Data on home sales, homebuilding, and consumer spending, including sales of new motor vehicles," have shown improvement, he said.

He also said, "monetary policy makers are fully committed to acting as needed to withdraw on a timely basis the extraordinary support now being provided to the economy."

Bernanke also sounded a cautious note for the students in the audience. "With recent job losses exceeding half a million per month, this year's college graduates are facing the toughest labor market in 25 years," he said.