New Federal Reserve chairman Ben Bernanke has told the US congress that the American economy has emerged from a lull at the end of last year, but warned that interest rates could rise further to avoid inflation.

In his first appearance before congress since he succeeded Alan Greenspan this month, Mr Bernanke painted an upbeat picture of the US economy, which slowed to an annual growth rate of 1.1 per cent in the last quarter of 2005.

He told the house financial services committee that data on jobs, production, retail sales and other business activity in January were promising.

"The economic expansion remains on track," he said.

Forecasting GDP growth of about 3.5 per cent in 2006 and 3-3.5 per cent in 2007, he said core inflation levels are expected to remain steady at around 2 per cent.

Most risks were on the upside, Mr Bernanke said, with high energy prices adding to inflationary pressures.

"The risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately - in the absence of countervailing monetary policy action - to further upward pressure on inflation," he said.

The Fed has hiked interest rates 14 times since June 2004 to 4.5 per cent, and Mr Bernanke's remarks came as no surprise to the markets, which anticipated that he would signal further increases.

The new chairman, who stressed that he would continue Mr Greenspan's policies, said America's slowing housing market could halt the economic expansion, although he said a "moderate softening" seemed more likely than a collapse in the market.