Ben Bernanke, the Federal Reserve’s chairman, gave a renewed signal today that it will order another interest rate cut next month to bolster the faltering American economy, but hinted at growing Fed anxieties over its ability to stave-off a severe US downturn.

Shares rallied on Wall Street after the central bank’s chief reaffirmed markets’ expectations that it is likely to deliver a further half-point cut in its key Fed Funds rate on March 18, on the heels of an aggressive 1.25 percentage points of reductions made over the past five weeks.

The Fed “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks”, Mr Bernanke said as he delivered a gloomy assessment of US prospects to the House of Representatives’ financial services committee.

However the Fed’s chairman also sought to rein-in markets’ expectations over its scope to keep cutting interest rates, pointing to its mounting worries over persistent inflationary pressures.

He hinted, too, that the Fed may also be becoming worried over the power of its sharp interest rates to shore-up growth, since despite these moves US borrowing costs for most households and companies have continued to climb as the credit squeeze tightens.

Mr Bernanke’s expression of increased concern over US inflationary dangers came as the Fed’s headache over price pressures was worsened by a fresh slump in the dollar, that will further stoke America’s import bills.

The dollar’s latest tumble propelled the euro to a new record high that took it above $1.50 for the first time, to levels as high as $1.5105. The pound also leapt, to within striking distance of $2, reaching $1.9971.

Intense pressure on the dollar was magnified in later trading by Mr Bernanke’s signal that US official interest rates are set to keep falling at a time when the European Central Bank is reluctant to cut rates.

The Fed’s inflationary woes were deepened still further, meanwhile, as the dollar’s slide sparked sharp gains in prices for oil and other commodities, driving the benchmark cost of crude to record levels above $102 a barrel.

Gold prices also surged, reaching a record $964.70 an ounce in spot markets.

In a shift of tone that indicated greater concern at the Fed over inflation, Mr Bernanke said that rising energy and commodity costs and the latest inflation figures “suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month”.

He gave warning that higher inflation, and rising expectations of future inflation among consumers and companies, “could reduce the flexibility of the [Fed] to counter shortfalls of growth in the future”.

In an indication of Fed nervousness over the potency of its rate cuts, Mr Bernanke added that the Fed faced a critical task of monetary whether its policy decisions were “properly calibrated to foster our mandated objectives”. Economists saw this remark as an indication of Fed unease that actual interest rates for borrowers have kept rising even as it has cut official rates.

In a pessimistic analysis of the US growth outlook, Mr Bernanke said that the overall situation was now “distinctly less favourable”, and that the latest data “continues to suggest sluggish economic activity in the near term”.

He said that consumer spending “appears to have slowed significantly” while “the business sector has also displayed signs of being affected by the difficulties in the housing and credit markets”.

Sounding a warning that the risks to prospects continue to be skewed towards a further deterioration, the Fed chairman said the US faced the threat that its housing and jobs markets could worsen more than forecast, or that “credit conditions may tighten substantially further”.

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