Rates Likely to Rise in Small Steps

He warned, however, that the Fed would move more swiftly if necessary, particularly if inflation takes off in a sustained way.

The likelihood of a "measured" pace of change is based on the current economic forecast, he said, and is "not an unconditional commitment."

Bernanke cited several reasons why he expects inflation to remain comfortably low, including the recent increase in many long-term interest rates, such as those for mortgages and corporate bonds. Those rates, many of which are up by a percentage point or more from their recent lows in March, should start cooling household and business borrowing, slowing rapid economic growth.

Responding explicitly to critics who say the Fed is moving too slowly, Bernanke credited Fed communication efforts for feeding market expectations that the central bank is preparing to move soon, which caused market rates to start rising.

General interest rate conditions "have already begun to normalize, a development that should tend to limit future inflation risks," he said. "A significant portion of the financial adjustment associated with the tightening cycle may already be behind us."

Other factors likely to restrain inflation in the coming year include competitive pressures from globalization, high corporate profit margins, the recent strengthening of the dollar and the continued strong growth of productivity -- economic output per hour of labor -- which has kept a lid on labor costs.

Long-term inflation expectations appear "well contained," and the recent increases in the prices of many raw materials may be peaking, he said.

In this environment, he said, so-called core inflation, which excludes prices for food and energy, "appears likely to remain in the zone of price stability" into next year.

Bernanke has said his comfort zone for core inflation is 1 to 2 percent. Fed Chairman Alan Greenspan has defined price stability as inflation that is so low it is not a factor in economic decision-making by households or businesses.

While Bernanke emphasized that he was speaking for himself and not necessarily for his Fed colleagues, some of them have expressed similar expectations about inflation in recent public remarks.

Bernanke acknowledged that the "flare-up in inflation in the first quarter is a matter for concern, and that the inflation data bear close watching."

But he said he is confident that the Fed will adjust policy "as necessary to preserve price stability."