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Bernanke: 'We're Not Out of the Woods'

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Although the "fiscal cliff" deal made "some progress" in resolving the nation's debt problem, "we're not out of the woods yet," Federal Reserve Chairman Ben Bernanke said Monday.

"We are approaching a number of other fiscal critical watersheds," Bernanke told the University of Michigan's Gerald R. Ford School of Public Policy. "We have the funding of the government, we have the so called sequester … and we have the infamous debt ceiling which will come into play."

Echoing comments made earlier in the day by President Barack Obama, Bernanke said raising the debt ceiling merely gives the government the ability to pay its existing bills.

"It doesn't create new deficits, it doesn't create new spending," he said. He said it was like a family deciding that to save money, it won't pay its credit card bill.

"It's very, very important that Congress take necessary action to raise our debt ceiling to avoid a situation where our government doesn't pay its bills," Bernanke said.

(Read More: Geithner Letter Warns Congress: We Will Hit the Debt Ceiling Soon)

The Fed chairman also said it would actually be better if the country didn't have a debt ceiling.

"I don't think that's going to happen, I think it's going to be around," Bernanke added, "but I do hope Congress will allow the government to pay its bills, not raise the possibility of default, which would be very costly for our economy, and then address very seriously these fiscal issues."

While some progress was made in working out the country's fiscal problems with the tax deal beginning of January to extend tax cuts for all American families earning less than $450,000 a year, Bernanke said the big challenge remains finding long-run debt sustainability without unduly hampering the U.S. economic recovery.

He said that the fiscal cliff probably would have created a recession in the U.S. this year, but some of that risk has been avoided.

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