A moderate U.S. economic recovery is likely to warrant very low interest rates for a long time, Federal Reserve Chairman Ben Bernanke said on Wednesday.

In congressional testimony that focused primarily on the barriers to continued growth, Bernanke argued inflation is not an immediate concern, giving the Fed room to maintain its highly stimulative policies.

The Federal Open Market Committee has stated clearly that they currently anticipate that very low, extremely low rates will be needed for an extended period, Bernanke said in response to questions from lawmakers of the Joint Economic Committee.

However, he stressed that this commitment was based upon certain conditions in the economy, including underused productive capacity, high unemployment and anchored inflation expectations.

If those conditions cease to hold and we anticipate changes in the outlook then of course we will respond to that, Bernanke added.

He said inflation figures remain subdued, and long-term inflation expectations remain contained. A government report on Wednesday showed U.S. consumer prices climbed 2.3 percent in March compared with a year ago, but rose just 1.1 percent when food and energy were excluded, the smallest increase in more than six years.

Bernanke's outlook for the expansion was rather pessimistic. He said growth was still being weighed down by weakness in the construction sector and battered state and city budgets.

The chairman did cite encouraging signs that layoffs are slowing and employment has turned up. But overall, his comments still suggested some cautiousness about the recovery, despite data on Wednesday showing a sharp 1.6 percent increase in March retail sales.

It implies he won't be tinkering with short-term interest rates in the near future, said Jeffrey Friedman, senior market strategist at Lind-Waldock in Chicago.

In response to the most severe financial crisis since the Great Depression, the Fed cut interest rates essentially to zero and undertook a host of unconventional emergency measures to keep credit markets flowing.

Despite those actions, the economy suffered its worst recession in more than 70 years, though things have been getting better recently, with U.S. gross domestic product surging 5.6 percent in the fourth quarter.

THE CHINA QUESTION

Legislators asked a lot of questions about China's exchange rate, an issue that has reemerged as a major talking point in Washington in the run-up to next week's G20 meeting.

Asked whether the yuan, which many analysts see as undervalued, helped cause the worldwide recession, Bernanke said it was one of many factors.

I think it would be good for the Chinese to allow more flexibility in their exchange rate. It would give them more autonomy in their monetary policy so they could address inflation and bubbles within their own economy, he said.

Other lawmakers focused on the issue of consumer protection, an area where the Fed is generally seen as having fallen short ahead of the crisis.

Bernanke admitted some mistakes, suggesting he was not completely set on having those kinds of supervisory duties fall within the central bank's jurisdiction.

I can understand why some advocates would want to have a purely independent agency, he said. While we have acknowledged being late on these issues, I do believe we should receive credit for a much better performance in recent years.

China Ben Bernanke Federal reserve