While he offered no indication the Fed is keen to embark on a third round of bond purchases, Bernanke also made clear the central bank is in no rush to reverse course after responding aggressively to a deep recession.

The jobless rate has dropped to 8.3 percent from 9.1 percent last summer, a move Bernanke said was "somewhat out of sync" with the rather modest pace of economic growth.

He said the decline could reflect an effort by businesses to recalibrate their payrolls after unusually heavy job cuts during the recession. If this is the case, he said, progress may stall.

"To the extent that this reversal has been complete, further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies," Bernanke told the National Association for Business Economics.

U.S. stocks climbed on hopes that Bernanke's speech could be a precursor to more Fed bond purchases, with each of the major indexes up at least 1 percent. The dollar fell against the euro, but prices for U.S. government debt also slipped as worries about Europe's debt crisis eased, sapping a safe-haven bid.

The U.S. central bank lowered overnight interest rates to near zero in December 2008 and has bought $2.3 trillion in debt securities to drive other borrowing costs lower in an effort to spur faster growth and cut unemployment.

"Reading between the lines, it sounds like he's pushing the ball forward toward having a discussion about doing more," said Chris Rupkey, economist at Bank of Tokyo-Mitsubishi, on the sidelines of the NABE conference.

After its last two meetings, the Fed said it would likely keep rates near zero at least through late 2014, but upbeat economic signs, including solid employment growth, have led investors to bet on a move as early as the middle of next year.

Bernanke's speech appeared aimed at pushing back against those expectations.

BOND BUYING PROSPECTS

U.S. gross domestic product grew 3 percent in the fourth quarter, but is expected to have slowed to just below 2 percent in the first three months of this year. For all of last year, it grew only 1.7 percent, which would normally be too slow to move the unemployment rate lower.

Sluggish economic demand has kept alive the potential for more Fed bond purchases, despite the signs of improvement in the labor market.

The policy does have detractors, including some inside the central bank. Philadelphia Federal Reserve Bank President Charles Plosser on Monday said central banks should not have unfettered ability to purchase assets because that violates the traditional separation of monetary and fiscal policymaking and can allow governments to inflate away debts.

"Granting vast amounts of discretion to our central banks in the expectation that they can cure our economic ills or substitute for our lack of fiscal discipline is a dangerous road to follow," Plosser told a conference in Paris.

That discomfort and differences over the outlook for the economy have led to an unusually wide range of views among policymakers over the proper course.

While a few officials are pushing for a further easing of monetary policy and some think rates might not need to rise until 2016, a hawkish minority believe the Fed would do well to reverse course this year. Bernanke is likely in the middle, biding his time to determine whether more bond purchases are needed but resolute in his thinking that any rate hikes can wait until 2014, analysts say.

The Fed chief reiterated his concern about long-term unemployment, which he said could cause workers' skills to atrophy, but he argued against the notion that much of the problem was due to shifts in the economy that had made workers' skills obsolete. If that were the case, the Fed might need to tighten policy sooner rather than later.

"The continued weakness in aggregate demand is likely the predominant factor. Consequently, the Federal Reserve's accommodative monetary policies, by providing support for demand and for the recovery, should help, over time, to reduce long-term unemployment as well," he said.

(Editing by Neil Stempleman & Theodore d'Afflisio)

• A Permanent Economic Emergency