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Bernanke Demands More from Lawmakers

Updated with additional quotations.

NEW YORK ( TheStreet) -- Federal Reserve chairman Ben Bernanke not only left the door open to further action from the Federal Reserve, but put further pressure on lawmakers to act more swiftly to address the ailing global economy.

In a speech before the House Financial Services Committee on Tuesday, Bernanke encouraged Washington to pursue actions that would achieve long-term sustainability and growth. He warned against steps that might impede an economic recovery.

While Bernanke's role as head honcho of the U.S. central bank limits his reach to changing monetary policy, Bernanke has been increasingly vocal about the lack of proper fiscal action in his recent speeches. His sentiment echoed Wall Street's discontent that lawmakers both in the U.S. and across the pond have stalled in implementing appropriate reform measures.

Bernanke said that "bouts of elevated volatility and risk aversion in financial markets" are "partly in reaction to fiscal concerns both here and abroad." While U.S. bank exposure to Europe's debt crisis is "limited," he said that uncertainty about what will happen to Europe remains a big problem.

"European leaders are strongly committed to addressing these issues, but the need to obtain agreement among a large number of countries to put in place necessary backstops and to address the sources of the fiscal problems has slowed the process of finding solutions," he said.

While Bernanke acknowledged that it is difficult to judge how much financial strains have hurt the U.S. economy, he said that these strains likely chipped away at consumer and business confidence.

As economists expected, Bernanke did not rule out further monetary policy. The Fed is "prepared to take further action as appropriate," he reiterated. "We never take anything off the table," said Bernanke in response to a question about whether the Fed would pursue a third round of quantitative easing in particular. He added that the Fed has no imminent plans for a QE3, in line with economists expectations that the central bank would only pursue such a plan in 2012 when inflation concerns are projected to ease.

Bernanke said that "inflation has begun to moderate" as "transitory influences wane," pointing to easing oil and commodity prices. "In addition to the stability of longer-term inflation expectations, the substantial amount of resource slack in U.S. labor and product markets should continue to restrain inflationary pressures," he said.

The Fed's chief speech on Tuesday was the first since the central bank formally announced the so-called "Operation Twist" on Sept 22. On Monday, the Fed kicked off the operation by buying $2.5 billion worth of long-term debt.

So far, the move has not triggered a swoon in the stocks as did the Fed's first two monetary easing announcements, suggesting that many investors have lost faith that the Fed can jumpstart the sluggish economy. To the contrary, the S&P 500 entered bear-market territory during trading on Tuesday.

Long term bond yields which have dropped leading up to the announcement of Operation Twist have only fallen further slightly. Interest rates on the 10-year and 30-year benchmark were last at 2.74% and 1.76%, respectively.

The central bank's decision to buy $400 billion in long term bonds using profits from selling short term bonds has been deeply controversial. Three members at the September Federal Open Market Committee voted against the idea and three Republicans -- Senate Minority Leader Mitch McConnell (R., Ky.), House Speaker John Boehner (R., Ohio), Sen. Jon Kyl (R., Ariz.), and House Majority Leader Eric Cantor (R., Va.) -- objected to "Operation Twist" before it was even announced. Fed "hawks" and critics have pointed to the dangers of inflationary pressures as well as unintentional consequences of such a move.

-- Written by Chao Deng in New York.

>To contact the writer of this article, click here: Chao Deng.

>To follow the writer on Twitter, go to: @chao_deng

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