US job growth, inflation still too low: Bernanke

US unemployment is too high despite an improving economy, Federal Reserve Chairman Ben Bernanke told Congress on Wednesday, suggesting the central bank has no intention of cutting short a USD 600 billion bond-buying program.

In testimony to the House of Representatives Budget Committee that largely echoed a speech he delivered last week, the Fed chief also warned about the dangers of unsustainable budget deficits.

Acknowledging a recent pickup in the economy, Bernanke said a sharp drop in the jobless rate to 9% in January from 9.8% in November, the biggest two-month decline since 1958, was "grounds for optimism." However, he noted hiring is still anemic.

"The job market has improved only slowly," he said, noting the economy had only made up just over one million of the more than eight million jobs lost during the deepest recession in generations.

"This gain was barely sufficient to accommodate the inflow of recent graduates and other new entrants into the labor force and, therefore, not enough to significantly erode the wide margin of slack that remains in our labor market," he added.

In November, the Fed launched a plan to buy USD 600 billion in government debt to keep a lid on long-term borrowing costs and support a fragile economic rebound.

That program drew ire from many policy-makers in emerging markets, who accused the United States of unfairly driving down the value of the U.S. dollar to boost exports. At home, many Republican lawmakers attacked the program as potentially sowing the seeds of inflation.

Bernanke said inflation remains quite low in the United States, a tough message to deliver amid headlines of rising food and commodity costs across the globe.

He also said expectations of future inflation had remained "stable," suggesting little worry an inflationary psychology was building despite rising gasoline costs.

"Inflation is expected to persist below the levels that Federal Reserve policymakers have judged to be consistent" with their mandate, Bernanke repeated.

Deflecting critics

The chairman of the committee, Republican Rep. Paul Ryan of Wisconsin, took issue with the Fed Chairman's sanguine view. In opening comments he criticized the Fed's policies as providing the fuel for future bubbles and inflation, suggesting the Fed's bond purchases were eroding the dollar's value.

"There is nothing more insidious that a country can do to its citizens than debase its currency," Ryan said.

However, Bernanke said the Fed was focused appropriately on underlying domestic inflation, which has been hovering near record lows.

On the budget, the Fed chairman delivered a message he has offered repeatedly: either legislators bring deficits under control or the markets will force them to.

"Creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit," he said. If unheeded, the adjustment could "come as a rapid and painful response to a looming or actual fiscal crisis."

Still, he deflected a question about contentious short-term budget cuts. "It's really a question of convincing the market that there's a long-term plan here," Bernanke said, adding that cuts should be done in a "growth friendly" way.

Republicans, who captured control of the House and picked up seats in the Senate in November elections, are pushing for deep spending cuts to attack a budget deficit that is expected to hit a record USD 1.5 trillion this year.

On Monday, President Barack Obama will weigh in on the fiscal debate with his budget proposal for next year. Administration officials have said he will offer a credible plan to trim deficits over the long-term, while preserving support for education and investment.