NEW YORK — Federal Reserve Chairman Ben Bernanke said Monday the issue of asset market bubbles remains one of the biggest challenges facing policy makers, though he added he does not see anything in the U.S. markets right now that concerns him.

"It's extraordinarily difficult to tell, but it's not obvious to me ... there are any large misalignments currently in the U.S. financial system," Bernanke said.

He was addressing the difficult issue of what policy makers should do when confronted with an asset market that appears to be rising out of step with what fundamentals suggest. As he and other policy makers have said before, Bernanke noted asset bubbles are a "very, very challenging problem" and it is very difficult to determine whether a market has lost its bearings.

Bernanke said the Fed can deal with bubbles by way of interest rate hikes, but he added it's important to "use the right tool for the job" and that it might be better to pursue unruly asset markets via the banking and supervisory avenue.

Bernanke's comments on asset bubbles come as some have worried the rock bottom stance of monetary policy may be making possible new bubbles in asset markets.

Bernanke's comments followed a formal speech before the Economic Club of New York, held in New York City. He was answering questions put to him by Henry Kaufman, of Henry Kaufman & Co., and Matthew Winkler, the head editor at Bloomberg News.

In his prepared remarks, the Fed chief laid out a case that should by now be familiar to most market participants. He indicated a minimal inflation threat, coupled with wounded job market and moderate economic growth, means the Fed is unlikely to raise interest rates any time soon.

The Fed continues to expect an economy that is "likely to warrant exceptionally low levels of the federal funds rate for an extended period," Bernanke said. "Continued growth next year is likely," he said. "However, some important headwinds--in particular, constrained bank lending and a weak job market--likely will prevent the expansion from being as robust as we would hope," the chairman said.

The official also mounted an unusual defense of the dollar, which has been under major pressures of late, saying a commitment to keeping inflation stable and promoting growth "will help ensure that the dollar is strong."

Most observers believe current economic conditions and their likely path over coming months will keep the Fed from raising rates until the middle of next year. Indeed, many economists reckon the current effectively zero percent policy may be able to stay in place throughout 2010, simply because the Fed will not face any sort of meaningful inflation threat.

On Friday, Federal Reserve Bank of Chicago President Charles Evans said in Paris that "inflation is underrunning and the economy is underperforming, so an accommodative policy is likely to continue to be appropriate, I would say well into 2010, most likely beyond."

Economists concur with the Federal Reserve's confidence on inflation. A survey of private forecasters released Monday by the Federal Reserve Bank of Philadelphia had economists predicting the central bank's preferred inflation gauge, the core personal consumption expenditures price index, is predicted to rise in a range that's well within the Fed's understood definition of price stability. In fact, inflation is seen rising at the low end of that range, with a gain of 1.4% this year, 1.3% in 2010, followed by 1.5% in 2011.

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