Critics of bond purchases have raised concerns that keeping interest rates at ultra-low levels for an extended period of time risks distorting financial market decisions. They worry that when the Fed finally begins raising rates, panic selling of stocks and bonds might ensue.
At its next policy meeting, Jan. 29-30, the Fed is also expected to reaffirm its plan to preserve ultra-low rates until unemployment hits 6.5 percent as long as the inflation outlook isn't more than a half percentage point above its 2 percent target.
Bernanke made clear that even after unemployment dips below 6.5 percent, the Fed might decide that it needs to keep stimulating the economy. Other factors will also shape the Fed's policy decisions, he said.
Analysts note that Congress and the administration face a bigger budget showdown within two months, when they must reach an agreement to raise the country's $16.4 trillion borrowing limit. That agreement might result in deep spending cuts.
"Everybody at the Federal Reserve is probably still on very high alert," said Mark Zandi, chief economist at Moody's Analytics. "We are not out of the woods yet. The fiscal brinksmanship is not over."
In forecasts it updated last month, the Fed said it expected the economy to grow between 2.3 percent and 3 percent this year. Bernanke said that estimate assumed that Congress' budget deal would include some tax increases and spending cuts.
The Fed's outlook for economic growth is slightly higher than many private economists expect but is achievable, says Brian Bethune, an economics professor at Gordon College in Massachusetts.
"The Fed is going to keep the pedal to the metal until we get more clarity" on what kinds of spending cuts Congress will adopt, which could slow the economy going forward," Bethune said.
At its December meeting, the Fed also announced that it would buy $85 billion a month in Treasury securities and mortgage-backed securities to try to keep downward pressure on long-term rates. The Fed said it would maintain those purchases until the job market improved substantially.