WASHINGTON — The uneven U.S. economic recovery will have to pick up in order to quickly bring down an unacceptably high jobless rate, Federal Reserve Chairman Ben Bernanke said on Wednesday.
"The job market is far from normal," he said in comments prepared for delivery to the House of Representatives Financial Services committee.
Bernanke's remarks suggested another round of Fed bond buying to stimulate growth is not off the table as policymakers assess whether job market gains will persist.
The drop in the unemployment rate, which fell to 8.3 percent in January, is more rapid than would be expected given the economy's sluggish rate of growth, Bernanke said.
"Continued improvement in the job market is likely to require stronger growth in final demand and production," he said.
Sustaining a highly accommodative monetary policy stance is consistent with the Fed's goals of achieving full employment with low and steady inflation, he said. The Fed believes rates near zero will be appropriate through at least late 2014, he added.
A recent rise in oil prices due to geopolitical tensions may raise inflation for a time and curb consumption, Bernanke said.
"Gasoline prices have moved up ... a development that is likely to push up inflation temporarily while reducing consumers' purchasing power," he said.
At its last policy-setting meeting in late January, the Fed said it isn't likely to raise benchmark interest rates - which have hovered near zero since December 2008 - until at least late 2014.
Bernanke, in a press conference following the meeting, left open the possibility the central bank could launch another round of bond buying if the weak recovery falters or if inflation begins to fall below the Fed's 2 percent target.
Strong jobs and factory data since then have eased worries U.S. economic growth could slow sharply, but tensions between Western nations and Iran have escalated, threatening a repeat of 2011 when a spike in energy prices hit the recovery hard.
Nervousness about oil supply have pushed crude oil prices to 10-month highs. In the United States gasoline prices are rising toward $4 a gallon, posing a risk to the recovery and leaving President Barack Obama open to criticism from Republicans on the campaign trail ahead of November's election and in Congress.
Average U.S. retail gasoline prices are now at nearly $3.72 per gallon, up from $3.37 a year ago. If tensions with Iran, a major producer, continue into the U.S. summer driving season, prices at the pump could rise more.
Some economists think the Fed will reconsider its 2014 target for raising interest rates if job growth continued to strengthen.
Lawmakers and some economists have begun to question whether keeping rates that low for that long will heighten the risk of inflation, especially if the economy continues to improve and companies keep hiring.
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Bernanke is not expected to signal any changes when he delivers the Fed's semi-annual economic report this week, first to the House Financial Services Committee on Wednesday and then to the Senate Banking Committee on Thursday.
Nor do economists expect the Fed to alter its plan after its next meeting, on March 13. But some believe the Fed may soften its commitment to the 2014 timeframe after its late-April meeting, if the economy continues to make solid strides.
"We believe we need to see another couple of months of large payroll gains around 250,000 alongside a lower unemployment" rate first, economists at Deutsche Bank said in a research note.
Others say it would take an unmistakable sign of strength for the Fed to back off the 2014 target this year.
The job market is looking a lot better. The unemployment rate has fallen for five straight months and employers have added an average of 200,000 net jobs per month from November through January. Many economists are predicting that trend carried over into February.
Consumer confidence rose this month to the highest point in a year. Stocks have been surging — the Dow Jones industrial average on Wednesday closed above 13,000 for the first time since May 2008, four months before the financial crisis. Even the housing market is looking a little better.
Many economists believe Bernanke will take note of the recent improvements. But he's expected to caution that serious risks remain. He's likely to note the debt crisis in Europe. And he'll point out that gas prices have jumped in recent months.
"I don't expect Bernanke to say much beyond what the Fed has been saying which is a very conservative outlook that continues to show concern about the sustainability of the recovery," said Brian Bethune, an economics professor at Amherst College.
Few economists expect the Fed to announce another round of bond-buying at its next meeting. But some say Bernanke will leave that option on the table, in case the economy falters again.
The Fed has tripled the size of its balance sheet since the financial crisis hit in 2008 to a record $2.94 trillion. It has conducted two rounds of bond purchases, one starting in late 2008, at the height of the financial crisis, and a $600 billion program that was announced in November 2010 and concluded in June of last year.
Here is the full prepared testimony Bernanke will give to the House Committee on Financial Services.
The Associated Press and Reuters contributed to this report.