Mr Alan Greenspan, Federal Reserve chairman, said yesterday that the central bank would act "promptly and forcefully" if evidence emerged of accelerating prices in the US, but said an increase in interest rates was not inevitable in the short term.

Displaying a caution unusual even for him, Mr Greenspan indicated he was not sure whether or not the current buoyant US labour market was too tight for comfort. He also conceded that last month's interest rate increase may not have been enough to subdue inflationary pressures.

Mr Greenspan's prepared statement for the semi-annual Humphrey-Hawkins testimony laid emphasis on the labour market as an influence on Fed policy.

"The already shrunken pool of job-seekers and considerable strength of aggregate demand suggest that the Federal Reserve needs to be especially alert to inflation risks," he said.