NEW YORK ( TheStreet) -- Federal Reserve Chairman Ben Bernanke reiterated the central bank's benign outlook for inflation but said that the central bank is ready to respond to the surge in global commodity prices when necessary.

Testifying before a senate panel to deliver his semi-annual monetary policy report,Bernanke said the Fed's outlook for inflation remains low. Most Fed officials forecast inflation at 1.25% to 1.75% for 2011 and in the range of 1% to 2% next year and in 2013. He also noted that inflation expectations were firmly anchored, citing measures derived from inflation-indexed treasury bonds and household surveys of consumer's inflationary expectations.
Federal Reserve Chairman Ben Bernanke

Investors have been worried that rising commodity prices would ultimately pass-through to end products and raise the overall level of inflation. In fact, many companies have been talking about raising prices later this year as input costs rise. The tensions in the Middle East have also sparked concerns of an oil shock on the economy.

While noting the conflict in the Middle East, Bernanke pointed out that the pass-through of commodity prices to broader index of consumer prices had been low in the past decade. Cost pressures were also being offset by stable unit costs.

"The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation -- an outlook consistent with the projections of both FOMC participants and most private forecasters," Bernanke told lawmakers. "That said, sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored. We will continue to monitor these developments closely and are prepared to respond as necessary to best support the ongoing recovery in a context of price stability."

The Chairman continued to defend the Fed's monetary policy amid criticism that its quantitative easing program was weakening the dollar and fueling a rise in global commodity prices. He argued that the increase in commodity prices was due to demand from fast-growing economies and supply constraints and were not linked to the dollar.

"Commodity prices have risen significantly in terms of all major currencies, suggesting that changes in the foreign exchange value of the dollar are unlikely to have been an important driver of the increases seen in recent months," Bernanke said.

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