A volatile combination of rising energy prices and faltering home prices is making a difficult job even harder for the Federal Reserve and its new chairman, Ben Bernanke.
Should the Fed keep raising interest rates to prevent inflation - a phenomenon driven in part by the ripple effects of oil prices above $70 a barrel? Or is it time for a policy pause, as a cooling US housing market pulls the economy onto a slower, and noninflationary, track?
The future path of an economy that is humming along, but that may now be slowing, depends in part on the Fed finding the right answers.
The dilemma posed by such mixed economic conditions helps explain the recent murky signals coming from the officials who manage America's monetary policy - including Chairman Bernanke at a congressional hearing Thursday.
The recent scuttlebutt, based on the Fed's policy-meeting minutes released 10 days ago, was that the central bank appeared to be nearly finished with its string of interest-rate hikes. Bernanke put it a slightly different way. He said the Fed may soon opt to stay on the sidelines for a time, to let more data to come in. But he said energy costs might tilt the Fed's policymaking committee toward vigilance against the risk of inflation.
"The committee [in March] ... judged that some further policy firming may be needed," he said in prepared remarks. "The data arriving since the meeting have not materially changed that assessment of the risks. To support the continued healthy growth of the economy, continued vigilance against inflation is essential."
In response to questioning by members of Congress's joint economic committee, he was pointed on the issue of energy: "Higher oil prices do create problems for monetary policy," he said.
Higher fuel costs potentially could push the rate of overall inflation higher, but Bernanke also noted an opposing risk: that the burden of new costs at the gas pump will take money out of consumer wallets and slow economic growth.
"Our current assessment is that the risks to inflation are perhaps the most significant at the moment," Bernanke said.
For more than a year, the US economy has absorbed the impact of rising oil prices. Consumer spending has not slowed. And the "core" rate of inflation, with food and energy stripped out, has been contained at an annual rate of about 2 percent.
Still, the core price level for consumers rose 0.3 percent in March, the most recent monthly inflation report. That was higher than expected.
At the same time, economists believe that the housing market is softening, a factor that promises to help prevent any overheating in economic growth and inflation.
Government numbers due out Friday are expected to show very strong first-quarter growth in the economy.
"It seems reasonable to expect that economic growth will moderate toward a more sustainable pace as the year progresses," Bernanke said Thursday. "Both new and existing home sales have dropped back," he said, and "the reading for March points to a slowing in the pace of homebuilding as well."
The median price of a new home in March, at $224,000, was 2 percent lower than a year before, according to a Commerce Department report this week. That's the first such year-over-year drop since 2003.
Many economists expect the housing market will merely cool, without a broad decline in home prices. Even if it just flattens, consumers who have used refinancing and home-equity loans to supplement their cash-flow will feel the pinch.
Bernanke stressed that the overall economy is healthy, averaging 4 percent annualized growth since mid-2003.
The Federal Reserve is expected to raise its short-term interest rate at least once more, at a May 10 meeting, from 4.75 percent to 5 percent. After that, some economists believe the Fed could continue boosting rates into the summer, perhaps to 5.5 percent. Others now expect it to pause.