At a time when U.S. economic indicators seem to signal otherwise, Federal Reserve Board chairman Ben Bernanke yesterday delivered an optimistic outlook for the economy, pointing to “tentative signs” that the pace of the decline may be slowing down.

In a speech delivered at Morehouse College in Atlanta, Bernanke also noted that while inflation is not a concern right now, the potential inflationary threat from the Fed’s quantitative easing means the monetary policymakers stand ready to “remove some of  that liquidity and raise the federal funds rate.”

Toward the end of his speech — in which he covered Fed actions so far in battling the crisis in the credit markets, bonus payments at American International Group, and the causes of the downturn — Bernanke described the current crisis as “one of the most difficult financial and economic episodes in modern history.”

There is some hope, he added, because “recently we have seen tentative signs that the sharp decline in economic activity may be slowing, for example, in data on home sales, homebuilding, and consumer spending, including sales of new motor vehicles.”

“A leveling out of economic activity is the first step toward  recovery,” he said.

The Federal Reserve will continue to take the necessary steps to unclog the credit markets and strengthen the U.S. economy, Bernanke said, defending the central bank’s aggressive actions to stabilize the economy because “our best forecast is that inflation will remain quite low for some time.”

— Market News International

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