Federal Reserve Chairman Ben Bernanke said on Thursday the central bank slashed interest rates this week to brace the U.S. economy against damage from financial turmoil but warned the outlook remains uncertain.

"We took the action to try to get out ahead of the situation and try to forestall potential effects of tighter credit conditions on the broader economy," Bernanke said in response to questions at a congressional hearing.

In testimony to the House Financial Services Committee on mortgage markets, Bernanke said a wave of delinquencies among home loans made to borrowers with blemished credit had triggered a tightening of credit as investors shied away from risk, and was reverberating more broadly in the economy, putting up hurdles to growth.

"The resulting global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans," the Fed chairman said in his testimony, echoing an assessment he gave at a monetary policy conference last month.

In the meantime, the economic outlook remains cloudy and the Fed stands ready to act as needed to keep the economy on track or prevent inflation from flaring up, Bernanke said.

"Recent developments in financial markets have increased the uncertainty surrounding the economic outlook," he said.

"The committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth," he added, in comments that mirrored the central bank's announcement on Tuesday.

Before the credit market turmoil became more pronounced over the summer, the Fed had stressed that its predominant concern was inflation. As turbulence spread, however, policy-makers shifted the scope of their concerns to include risks to growth.

The Fed cut the discount rate -- the rate it charges banks for loans -- on August 17 to help thaw frozen credit markets. The central bank followed with a surprisingly hefty cut to its interbank federal funds rate on Tuesday to further buffer the economy from the prolonged housing slump and credit market woes.

Nevertheless, Bernanke said on Thursday the Fed continues to monitor price pressures carefully and that keeping inflation at bay is critical to a smoothly performing economy.

"We will continue to pay very close attention to the inflation rate. It is an important part of our mandate and I agree with you that an economy cannot grow in a healthy, stable way when inflation is out of control, and we will certainly make sure that doesn't happen," Bernanke said in response to lawmakers' questions.

The Fed chairman rebuffed the charge that the Fed contributed to the housing bubble by holding the fed funds rate at historically low levels for an extended period in the earlier part of the decade.

Long-term interest rates around the world had a greater influence in pumping up housing prices than short-term rates set by the central bank, he said. Even though the Fed eventually raised benchmark overnight borrowing costs, longer-term interest rates, which are more closely linked to the rates lenders charge for most mortgages, remained low, he added.

"As the Federal Reserve lowered interest rates to one percent and then raised them gradually, mortgage rates did not respond very much to those short-term rates. They were in fact primarily determined by the long-term rates determined in international capital markets," he said.

Inflation Ben Bernanke