Federal Reserve Chairman Ben Bernanke told Congress low interest-rate policies are providing necessary support to an economy struggling with high unemployment.
In his semiannual report to the Senate Banking Committee, Bernanke signaled the central bank will continue its efforts to keep borrowing costs low.
Bernanke acknowledged the Fed's aggressive program to buy $85 billion a month in Treasury and mortgage bonds could spark inflation or make investors uneasy.
However, he said those risks are contained for now.
Bernanke also urged Congress to replace the automatic spending cuts set to kick in Friday with more gradual reductions in the short run.
"Such an approach could lessen the near-term fiscal headwinds facing the recovery while more effectively addressing the longer-term imbalances in the federal budget," Bernanke told lawmakers.
"The size of deficits and debt matter, of course, but not all tax and spending programs are created equal with respect to their effects on the economy," he said.