WASHINGTON — Federal Reserve chairman Ben Bernanke on Tuesday warned a “sustained” rise in oil prices could threaten US growth and spark dangerous price rises, as he eyed turmoil in Libya.
Bernanke told Congress he believed unrest in the oil-rich Middle East would result in “temporary” and “modest” increase in US prices, but acknowledged greater risks remain.
“The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in US consumer price inflation.”
“That said, sustained rises in the prices of oil and other commodities would represent a threat both to economic growth and to overall price stability.”
He added there was a particular risk from unrest pushing up expectations about future price rises.
The threat of higher prices could be enough to spook wary US shoppers, who are only reluctantly opening their wallets after the worst recession in a generation.
Bernanke vowed the central bank would “monitor developments closely” and would respond if necessary, to ensure the economic recovery remains on track.
Amid fighting between the Libyan opposition and forces loyal to leader Moamer Kadhafi, Libya’s estimated 1.6 million barrel a day production has slowed to a trickle, sending global oil prices rocketing.
Americans have seen the price of gasoline at the pump rise by an average of 21 cents a gallon in the last week, according to figures from the American Automobile Association.
With much of the global economy still ailing from the financial crisis, many fear sharply higher oil prices could smother the recovery and send many nations spiraling back into recession.
President Barack Obama’s top economic adviser, Austan Goolsbee, said prices were not yet at levels that could hurt the economy deeply.
“We continue to monitor the events of the Middle East and the fuel markets, because high fuel costs do have a negative impact on the economy,” he said.
“Thus far we are not forecasting… that at these levels they would derail the recovery.”
But the price rises bring an extra headache for Benanke.
In a bid to keep the recovery on track, the Federal Reserve is currently pumping $600 billion into the economy.
That has brought criticism that the Fed could be stoking inflation.
Bernanke and his allies insist the Fed has all the tools necessary to unwind their stimulus policies, if and when they need to.
Federal Reserve policy makers, he said, “remain unwaveringly committed to price stability,” he said.