Fed's Bernanke on central bank policy, bias

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke testifies before the congressional Joint Economic Committee and says the U.S. central bank has not moved away from its bias toward battling inflation, but warns that risks to the economy's health have also risen.

"Neutral policy would be one where there is a sense that the risks are weighted equally on both sides of the dual mandate, therefore policy is essentially unpredictable."

"In our statement we said that our view was that the inflation risk was still predominant and so our policy is still oriented toward control of inflation which we consider to be at this time to be the greater risk. Nevertheless, as I mentioned in my testimony, the uncertainties have risen and therefore a little more flexibility might be more desirable. Nevertheless, I do want to emphasize that we have not shifted away from an inflation bias."

"I would say it would be more accurate to say that we are looking for a bit more flexibility given the uncertainties that we are facing and the risks that are occurring on both sides of our outlook."

"We, in general, prefer not to give advance rate guidance, that is not to tell the market, 'We're going to do this, that, and the other.' Rather, it's better for the FOMC to describe our outlook and the risks we see to the outlook and let the markets make their own determination about how to price assets. One aspect of this change has been to move away from forward rate guidance which we view as being something that should be undertaken mostly under unusual circumstances."

"We believe that the housing market does present a potential downside risk to our baseline forecasts. We are watching it very carefully. Our baseline forecast is that this housing correction will work itself out and that sometime later this year, as the inventory of unsold homes comes down, that construction will stabilize and that the economy will consequently strengthen somewhat."