Bernanke: Headwinds Challenge Recovery - TheStreet

WASHINGTON, D.C. (

TheStreet

) --

Federal Reserve

Chairman Ben Bernanke Monday cautioned against declaring a lasting recovery, pointing to tight credit conditions and a difficult job market, but said he believes inflation is likely to remain subdued and that long-term expectations are stable.

Bernanke's cautious tone, coupled with his contention that inflation wouldn't pose a problem in the near-term, supports the belief that the Fed will likely continue to keep interest rates at extremely low levels in order to coax economic recovery.

"Though we have begun to see some improvement in economic activity, we still have some way to go before we can be assured that the recovery will be self-sustaining," Bernanke said in prepared remarks before the Economic Club of Washington in Washington, D.C.

The major equity indexes held moderately higher following the speech. Both gold and oil prices strengthened after trading weaker throughout the morning, and the dollar remained pressured, down 0.5%, according to the dollar index.

Bernanke's comments are always closely watched by those hoping to gauge upcoming Fed actions but Monday's speech was of particular interest in light of Friday's better-than-expected jobs report that spurred a dollar rally and incited fears that the Fed would raise interest rates sooner than anticipated.

"The Federal Reserve is committed to keeping inflation low and will be able to do so. In the near term, elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here," Bernanke said, adding that continued indications of a strengthening recovery would eventually necessitate an unwinding of economic stimulus actions.

"For that reason, we have been giving careful thought to our exit strategy. We are confident that we have all the tools necessary to withdraw monetary stimulus in a timely and effective way."

Unsurprisingly, the first question Bernanke took during the question-and-answer session was whether the Fed was planning on raising interest rates, to which the chairman repeated his stance that inflation posed little risk in the near-term.

He added that the committee would take recent signs of improving economic conditions into account at its next meeting when it tries to update its outlook.

Written by Melinda Peer in New York.