Federal Reserve Chairman Ben Bernanke said on Wednesday that the U.S. economy continues to need highly accommodative monetary policy.
Answering questions at a conference sponsored by the National Bureau of Economic Research Bernanke said that when looking at the Fed's dual mandate on employment and inflation more work needed to be done.
He said the 7.6 percent unemployment rate probably "overstates the health of the labor market" and that inflation remains below the Fed's 2 percent target. Moreover, fiscal policy remains "quite restrictive," Bernanke said.
"Highly accommodative monetary policy for the foreseeable future is what's needed," he said.
Markets recently sold off amid fears that the Fed may begin to taper its monthly $85 billion bond-buying program as early as September.
But while policy is likely to remain loose, Bernanke said that policy makers are "somewhat optimistic" about the economy and that housing is a positive and household balance sheets have improved.
"If financial conditions were to tighten to the extent that they jeopardized the achievement of our inflation and employment objectives, then we would have to push back against that," Bernanke said.
"I think there are some risks now that we have to pay attention to, but I think it's also the case that there are some positive factors that, with some luck, will generate somewhat faster growth and continued improvement in labor-market conditions."
In his prepared remarks on the 100-year history of the U.S. central bank, Bernanke said that policy makers have learned the hard way to treat financial stability as a top goal.
"The recent crisis has underscored the need both to strengthen our monetary policy and financial stability frameworks and to better integrate the two," he said in prepared remarks.
Bernanke began with a spoiler alert that he would leave any observations about current policy to an audience question-and-answer session at the end of his speech, as well as to two days of congressional testimony that he will deliver next week.
Bernanke is to address the House of Representatives Financial Services Committee on July 17 and the Senate Banking Committee on July 18.
In a sweeping description of how the Fed has evolved since its creation by Congress in 1913, Bernanke noted that the prolonged period of low inflation and steady growth between 1984 and 2007, dubbed the Great Moderation, may have contributed to excess risk-taking that led to the subsequent crisis.
(Read More: Fed Officials Showed Worry About Easing Policy)
"The idea that this long period of calm lulled investors, financial firms and financial regulators into paying insufficient attention to building risks must have some truth in it," he said. But that does not mean policy makers should not strive for economic stability.
"Rather, the right conclusion is that even in—or perhaps, especially in—stable and prosperous times, monetary policy makers and financial regulators should regard safeguarding financial stability to be of equal importance as—indeed, a necessary prerequisite for—maintaining macroeconomic stability," he said.