by Calculated Risk on 11/08/2007 10:59:00 AM

From MarketWatch: U.S. faces risks of downturn, inflation: Bernanke

The U.S. economy not only faces the risk of a sharp slowdown from the housing market's contraction but also of an inflationary surge from sharply higher crude-oil prices and the weaker dollar, Federal Reserve Chairman Ben Bernanke said Thursday.
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Bernanke said that he and his colleagues on the policy-setting Federal Open Market Committee expect the economy to slow "noticeably" from the third-quarter growth rate and remain sluggish in the first half of 2008. But Bernanke also suggested that the hawkish members of the Fed might have a point about inflation.

There were downside risks to the subdued growth forecast, and upside risks to the benign inflation outlook, Bernanke said.
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He noted that prices for crude oil and other commodities have risen sharply in recent weeks and that the dollar has weakened in foreign-exchange markets.

"These factors were likely to increase overall inflation in the short run and, should inflation expectations become unmoored, had the potential to boost inflation in the longer run as well," Bernanke said.
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Bernanke bluntly said that headline inflation is going to rise in the short term.

Here is Bernanke's Speech: The economic outlook