Bernanke: full effect of rate cuts yet to be felt

WASHINGTON (Reuters) - The full benefit of recent Federal Reserve interest rate cuts has not yet been felt, Fed Chairman Ben Bernanke said on Thursday, nodding to a policy lag that may reduce the need for many more rate moves ahead.

"Further actions will have to depend on how the economy evolves and we are looking of course at both sides of our mandate, growth and inflation," Bernanke told a U.S. Senate Banking Committee hearing on the rescue of troubled investment bank Bear Stearns.

The Fed has slashed interest rates 3 percentage points to 2.25 percent since September to limit the fallout from the collapse of the subprime mortgage market, which some analysts fear has pushed the economy into recession.

"The effects of monetary policy are felt over a period of time and we expect to see further positive effects of these policies going forward," he said. "I believe we have helped to offset the credit crunch to some extent."

Bernanke acknowledged in testimony on Wednesday that there was a risk U.S. growth could contract slightly in the first half of this year, before picking up in the next six months.

On the other hand, recent economic indicators have been mixed, with some signaling that conditions were not getting worse at an accelerating pace and may even be stabilizing.

Investors have trimmed bets on more Fed cuts. Interest rate futures contracts currently imply investors fully expect the Fed will cut by a quarter percentage point, to 2.0 percent, at its next scheduled policy meeting, on April 29-30. But they give only a 20 percent chance the Fed would cut by a steeper 50 basis points, which is less than earlier this week.

Bernanke also stressed on Thursday that the Fed was uncomfortable with the current high levels of inflation, while arguing that these pressures should abate in the months ahead.

"The primary reason for the high inflation is rapid increases in the price of globally traded commodities, including crude oil and food," he said. Headline U.S. consumer prices rose 4.0 percent in February versus a year ago.

"It is our expectation, which is consistent with the prices seen in futures markets, that these prices will moderate in the coming year and that therefore, overall inflation will tend to slow," Bernanke said.

"However, we are aware of the uncertainties involved with that and we are obviously going to be watching the situation very carefully," he added.

(Reporting by Alister Bull; Editing by Dan Grebler)