Federal Reserve Chairman Ben Bernanke said policy-makers were concerned by signs of rising long-term inflation expectations but did not see a dangerous wage-price inflation spiral developing.
"Some indicators of longer-term inflation expectations have risen in recent months, which is a significant concern for the Federal Reserve," Bernanke said in a speech to graduating students at Harvard University.
"We will need to monitor that situation closely," he said, but added there was little sign a "1970s-style wage-price spiral, in which wages and prices chased each other ever upward", might be starting.
Over the past four quarters, overall inflation has averaged about 3-1/2 percent, "significantly higher than we would like but much less than the double-digit rates that inflation reached in the 1970s and then again in 1980," Bernanke said.
Analysts said the tone of Bernanke's remarks indicated the Fed was likely to keep rates on hold as its attention has shifted to keeping inflation in check.
"I'm not saying that he will not lower rates even if the economy falters severely, but he's certainly suggesting that inflation is of equal importance," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
Bond prices fell after Bernanke's remarks were published as investors bet it meant no more reduction in interest rates any time soon and the dollar rose in value against other currencies.
Stocks weakened as Bernanke, for the second straight day, voiced concern about rising inflation expectations.
He said the impact of soaring oil prices has been "relatively muted" because the amount of energy used to produce a given amount of output -- a gauge known as energy intensity -- has fallen markedly since the 1970s.
He also said policy-makers learned a lesson in the 1970s, in particular that they must keep long-term inflation expectations anchored to achieve low and stable inflation.
"If people expect an increase in inflation to be temporary and do not build it into their long-term plans for setting wages and prices, then the inflation created by a shock to oil prices will tend to fade relatively quickly," he said.
He said the United States and the rest of the world still faced significant challenges in dealing with rising global demand for energy, especially if steady demand growth and tight supply keep upward pressure on prices.
But he said that should also encourage conservation and boost investment in energy-saving technologies, which will the economy over the longer term.