THE US Treasury Secretary, Mr Robert Rubin, expects continued low inflation despite last week's preemptive move by the Federal Reserve boosting short term interest rates, he said yesterday.

"All the evidence to me suggests inflation is likely to remain low, but I also think one has to remain very watchful," said Mr Rubin, citing the unexpected soaring rates of the 1970s that had "very serious undermining effects on our economy".

He refused to comment directly on the Fed's decision last Tuesday to raise overnight interest rates by 0.25 percentage points to 5.5 per cent and subsequent Congress criticism that the move would push up the cost of living.

Instead, he said the economy was doing very well and "the key now is to continue with a successful economic strategy".

He cited the current 5.3 per cent unemployment rate, 12 million new jobs and rising family incomes to demonstrate that the economy was "very healthy". "We've had a remarkable four years, he said.

The Fed did not set intermediate and long term interest rates "which really drive the economy", he said. Those rates were determined by the financial markets and "will reflect economic conditions including inflation and prospects for growth".