Bernanke, in opening remarks to the Kansas City Fed's annual Jackson Hole conference, said the recent decline in commodity prices, as well as the increased stability of the dollar, has been encouraging.

"If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next year," he added.

"Nevertheless, the inflation outlook remains highly uncertain, not least because of the difficulty of predicting the future course of commodity prices, and we will continue to monitor inflation and inflation expectations closely," warned the central bank chief.

He stressed that the Fed will "act as necessary" to make sure prices moderate.

He also noted that the current financial crisis poses a major challenge to Fed policymakers.

"Although we have seen some improved functioning in some markets, the financial storm that reached gale force before our last meeting" around this time last year "has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment," Bernanke said.

"Add to this mix a jump in inflation, in part the product of a global commodity boom, and the result has been one of the most challenging economic and policy environments in memory," he said.