In remarks prepared for delivery to a business group in Charlotte, North Carolina, Mr Bernanke says policy makers are carefully monitoring "mixed" economic data, with a depressed housing sector, strong labor market and consumer spending "on the soft side."
He said the central bank's economic outlook has been "importantly affected over the past month by renewed turbulence in the financial markets" as well.
That turbulence has "partially reversed" the market improvements of September and October and created tighter financial conditions which have the "potential to impose additional restraint on activity in housing markets and in other credit-sensitive sectors."
Mr Bernanke said the Fed would be paying "particular attention" to how the financial market strains might hurt the rest of the economy and would have to be "exceptionally alert and flexible" in dealing with the unusual economic uncertainty.
As usual, he made no explicit comment on the Fed's next step on monetary policy. But his remarks echoed the words of vice chairman Donald Kohn in a speech on Wednesday that Wall Street interpreted as a signal the interest-rate-setting Federal Open Market Committee (FOMC) would likely be cutting rates at its December 11 meeting.
Mr Kohn also expressed considerable concern about the partial reversal of financial market improvements and the consequent tightening of credit for the broader economy. Traders focused on a phrase Mr Kohn used about conditions which might "require offsetting policy actions."
The Fed cut its base rate a quarter of a percentage point on October 31 to 4.5 per cent following a half-point reduction in September in an effort to ease stress in credit markets resulting from massive losses by mortgage lenders.
Ironically, a Commerce Department report showed the US economy surged at a revised 4.9 per cent pace in the third quarter, the fastest pace in four years and higher than last month's estimate of 3.9 per cent.
But many economists say a slowdown is under way as a result of the housing and credit market ills and some say a recession is possible in the coming quarters. © 2007 Australian Broadcasting Corporation