Ben Bernanke offered no hints about further Fed stimulus in the opening remarks of his testimony Thursday before the Joint Economic Committee, instead calling on fiscal policymakers to put the nation's finances on a sustainable path.
Investors are speculating that the Fed could extend Operation Twist -- its program of swapping short-term bonds for ones with longer duration to help keep 10-year and 30-year bond yields low -- or launch a third round of asset purchases known as quantitative easing.
But Bernanke offered little to imply that such moves are imminent and instead repeated that the Fed will continue to monitor the economy and is prepared to act if needed.
"The Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate," Bernanke said.
Bernanke's testimony comes after other Fed officials, including Vice Chair Janet Yellen and San Francisco Fed president John Williams, indicated that more stimulus by the central bank might be necessary to boost the sputtering U.S. economy.
In response to questioning, Bernanke did say that Fed officials and staff were working on new economic projections, and the question of additional action would be discussed at the Fed's next committee meeting.
"I think the key question that we'll be facing will be -- will economic growth be sufficient to achieve continued progress in the labor market?" Bernanke said.
When asked directly about a third round of large-scale asset purchases known as quantitative easing -- or QE3 -- Bernanke would not dismiss the idea.
"At this point I really can't say that anything is completely off the table," Bernanke said.
Meanwhile, other central banks are taking action. Earlier Thursday, the People's Bank of China trimmed a quarter percentage point off its deposit and lending interest rates, its first rate cut since 2008.
Bernanke, speaking to members of Congress, said the body could do more to establish a consistent fiscal policy.
"Monetary policy is not a panacea," Bernanke said. "It would be much better to have a broad-based policy effort addressing a whole variety of issues."
Specifically, Bernanke said lawmakers should work to avoid the so-called fiscal cliff, a term coined by Bernanke himself.
The "cliff" includes the expiration of the Bush tax cuts, middle-class protection from the Alternative Minimum Tax, and more than 50 "temporary" tax breaks for individuals and businesses that are set to run out.
It also includes nearly $1 trillion in blunt spending cuts across many areas of the federal budget. These would take a significant bite out of defense and non-defense spending.
A number of stimulus measures -- such as the payroll tax cut and extended unemployment benefits -- will also be ending.
Bernanke said going over the cliff would "pose a significant threat to the recovery." He added that uncertainty over the issue's resolution -- largely in Congress' hands -- could "undermine business and household confidence."
Bernanke sounded a note of optimism on the labor market, saying that the recent slowdown in job growth may have been exaggerated by weather-related issues. But he also cautioned that the large gains seen around the New Year could be the result of hiring by businesses that had aggressively cut back on workers during the recession.
If that is the case, Bernanke said, "more rapid gains in economic activity will be required to achieve significant further improvement in labor market conditions."
Bernanke also warned of risk from Europe, saying the continent's debt crisis "poses significant risks to the U.S. financial system and economy and must be monitored closely."
Noting the steps policymakers have taken to contain the crisis, Bernanke said that "more will likely be needed to stabilize euro-area banks, calm market fears about sovereign finances, achieve a workable fiscal framework for the euro area, and lay the foundations for long-term economic growth."
Bernanke also said inflation is likely to remain at or slightly below the 2% rate that the Fed targets, and said that increases in the price of oil and other commodities "are unlikely to result in persistent increases in overall inflation."