Ben Bernanke was speaking before a lecture at the George Washington business school, in which he criticised the gold standard and said that the Fed had failed to prevent deflation during the Great Depression that struck in 1929.
The current Fed chief said that its role was to prop up output and employment and prevent a credit crunch emanating from failed banks.
Earlier in the day official data showed that US housing starts fell in February, but permits for future construction jumped to their highest level since October 2008 – suggesting that there may be light at the end of the tunnel for the ailing American housing market.
Meanwhile President Barack Obama’s treasury secretary stuck up for the Volcker rules, which separate retail banking from riskier operations.
Tim Geithner said the rules do not present “a meaningful risk to liquidity or credit in those countries”.