MercoPress. South Atlantic News Agency

US inflation outlook “highly uncertain” says Fed' Bernanke

"Warned that the financial storm with gale force is still on", said Bernanke

US Federal Reserve chairman Ben Bernanke said the inflation outlook for the country is “highly uncertain”. Rising prices, coupled with the effects of the credit crunch, had given the US economy a battering.

Mr Bernanke, speaking to a Kansas City Federal Reserve Bank conference in Jackson Hole, Wyoming, said Fed policy makers had to preserve price stability. US prices rose by 5.6% in the year to July, the fastest inflation rate since 1991 recent figures showed. Mr Bernanke told delegates at the high-profile economics conference that there had been "some improved functioning in some markets". However, he said that "the financial storm that reached gale force" around this time last year "has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment". There were some positives though, as Mr Bernanke pointed out that declines in commodity prices and stability in the dollar were encouraging signs. The Fed, he said, would monitor the situation closely and "act as necessary" to make sure that inflation did not get out of hand. Meanwhile, investment guru Warren Buffett said that stocks are "more attractive" than a year ago. Much of Mr Bernanke's speech addressed the need for the US financial system to be more resilient to future economic shocks. He suggested that regulators in future should assess the health of the entire financial system, rather than the condition of individual banks, Wall Street investment firms or other financial companies - as is the case at present. "Such an approach would appear well justified as our financial system has become less bank-centered," he said. "Some caution is in order, however, as this more comprehensive approach would be technically demanding and possibly very costly both for the regulators and the firms they supervise," he added. The statement came amid renewed concerns over the financial health of Fannie Mae and Freddie Mac, which own or back more than half of all US mortgages. Their share prices have fallen this week amid new rumors that the pair are to be the subject of a government bailout. Meanwhile in related news Merrill Lynch, Goldman Sachs and Deutsche Bank were the latest banks to reach a settlement with US regulators over the sale of risky securities. The banks have agreed to buy back billions of dollars in auction-rate securities and pay fines, after allegations that they misled investors. Of the three firms Merrill Lynch is to pay the highest fine of 125 million US dollars. Other banks that have reached similar settlements with regulators include Morgan Stanley and JP Morgan Chase. New York Attorney General Andrew Cuomo has been leading the probe, with the support of federal and state regulators. The banks have been accused of marketing the financial products, called auction-rate securities, as much safer than they were. Investors were told that auction-rate securities would return more than money market investments and be easy to sell. Under the latest deal with Mr Cuomo, Merrill Lynch said it would repurchase up to 12 billion US dollars in auction rate securities as well as pay the 125 million fine. Deutsche Bank meanwhile has a 15 million fine to pay and must buy back some 1 billion of the investments. Goldman Sachs has a 22.5 million fine and has agreed to buy back 1.5 billion in securities. Earlier this year, Citigroup and Swiss banking giant UBS reached a settlement to buy back 26 billion of the securities.