One of President Obama’s most senior economic advisers has cautioned against excessive optimism on immediate prospects for a US and global economic revival. Paul Volcker, who chairs Mr Obama’s Economic Recovery Advisory Board, reinforced warnings that recovery from the present crisis will be protracted and difficult.

“A long slog, with continuing high levels of unemployment, seems to be in store,” the former Chairman of the US Fed said in Beijing.

Mr Volcker’s remarks underlined a similar message from Mervyn King, Governor of the Bank of England, who angered the Treasury last month when he said recovery in Britain would be “relatively slow and protracted”.

Mr Volcker argued that the subdued nature of the upturn was likely to forestall the threat of a surge in inflation that some economists say could be triggered by the huge stimulus being pumped into developed economies by governments and central banks.

“This is not an environment in which inflationary pressures are at all likely for some time to come,” said Mr Volcker, who is widely credited with having eradicated the inflationary threat that beset the US economy in the Seventies. Under his Fed chairmanship, inflation, at 13.5 per cent in 1981, was cut to 3.2 per cent by 1983.

He also sought to quell speculation that the US could try to deal with the huge government debt run up in fighting the crisis by allowing inflation to erode the value of what America owes.

He said that such a course would not serve US interests: “I think it should be understood that the central responsibility of the United States – in its own interest, in China’s and in the world’s – is to maintain both the purchasing power of the dollar at home, and in international markets, and a strong and open financial system.”

Fears that rising interest rates could undercut any US recovery mounted last night after benchmark yields on US Treasury bonds surged above 4 per cent, a level not seen since last October. The rise comes as investors fret over the scale of US national debt and the prospect that the Fed might raise rates to stave off an inflation threat.

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