Growth, inflation still missing Fed goals - Bernanke

U.S. Federal Reserve Board Chairman Ben Bernanke testifies in front of the U.S. Senate Budget Committee on ''The U.S. Economic Outlook: Challenges for Monetary and Fiscal Policy'' on Capitol Hill in Washington, January 7, 2011.

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke said on Thursday that despite recent signs of improvement in the U.S. economy, the recovery still needs help from the Fed.

"Although economic growth will probably increase this year, we expect the unemployment rate to remain stubbornly above, and inflation to remain stubbornly below, the levels that Federal Reserve policymakers have judged to be consistent over the longer term with our mandate," he said in remarks prepared for delivery to the National Press Club.

Bernanke provided a modestly more rosy outlook for the world's largest economy than in previous speeches, citing gains in household spending, improved confidence, and stepped up bank lending as signs 2011 may see stronger growth than 2010.

Even the hard hit job market shows some grounds for optimism, Bernanke said.

However, modest growth and cautious hiring suggest that it will be several years before the jobless rate returns to a more normal level, he said.

"Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established," he said.

The Fed chairman defended the U.S. central bank's controversial $600 billion bond buying program, saying its benefits are evident from a range of financial market metrics.

These include higher stock prices and less volatility in equities markets and narrower spreads between riskier and less risky corporate bonds, he said.

(Reporting by Mark Felsenthal and Pedro Nicolaci da Costa; Editing by Andrea Ricci)