Bernanke warns on oil price threat to US recovery

The soaring oil price poses a threat to the US economic recovery if price hikes are sustained, warns Federal Reserve chief Ben Bernanke.

Addressing the Senate Banking Committee, Bernanke said Middle East unrest and the subsequent rise in commodity prices will probably translate into a modest and short-lived increase in consumer inflation, the New York Times reports.

However, sustained rises in the prices of oil and other commodities would represent a threat both to economic growth and to overall price stability, he says.

The real concerns, though, remain US unemployment figures. "Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established," he adds.

But he notes there are several upbeat indicators in the labour market, such as the notable declines in the unemployment rate in December and January, a drop in new claims for unemployment insurance and an improvement in firms' hiring plans.

Meanwhile, the housing market remains stagnant, Bernanke says.

"Many potential homebuyers are still finding mortgages difficult to obtain and remain concerned about possible further declines in home values."

Overall, Bernanke is bullish on the US economy, pointing to strength within consumer and corporate spending.

The chairman also defended the ongoing purchase of hundreds billions of dollars in government debt, as part of its QE2 programme.

Bernanke says the Fed is tracing the way out of recession by keeping interest rates low, adding it is too early to start winding down the stimulus program.

In January, the Federal Open Market Committee unanimously backed proposals to continue the $600bn (£368bn) Treasury purchase plan, a strategy intended to spur growth.