WASHINGTON, July 15, 2008 (AFP) - The US economy is growing a bit faster than expected and could avert recession, Federal Reserve chairman Ben Bernanke indicated Tuesday, while citing a 'critical' need to keep inflation expectations in check.

Bernanke also said a 'top priority' of the central bank would be to keep financial markets functioning, and that the Fed was paying close attention to the troubles of mortgage giants Fannie Mae and Freddie Mac.

The Fed chairman, delivering his semiannual forecast to Congress, indicated that his outlook for better growth and cooling inflation remained subject to a 'high degree of uncertainty.'

The central bank called for 2008 growth in a range of 1.0 to 1.6 percent, up from an April projection of 0.3 to 1.2 percent. The inflation outlook was hotter at 3.8 to 4.2 percent for overall prices but the outlook for 'core' inflation excluding food and energy was unchanged at 2.2 to 2.4 percent.