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NEW YORK, Nov 16 (Reuters) - Federal Reserve Chairman Ben Bernanke said on Monday that the U.S. central bank was monitoring the declining value of the dollar closely, saying the Fed was committed to both jobs growth and price stability.
However, he said there were other factors helping to restrain inflation in the United States, and he repeated that the Fed is likely to keep interest rates exceptionally low for "an extended period."
In a rare commentary on the value of the dollar, Bernanke drew a link between its current weakness and inflation risks.
"We are attentive to implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability," he said in remarks prepared for delivery to the Economic Club of New York.
Fed officials usually defer to the Treasury secretary on issues relating to the dollar's value.
Bernanke noted that the currency's recent decline had been a factor helping to push commodity prices higher. However, he also said a high level of slack in the economy and stable longer-run inflation expectations should keep price pressures under wraps.
"On net, notwithstanding significant crosscurrents, inflation seems likely to remain subdued for some time," he said.
Bernanke cautioned that inflation expectations can be an important early warning of actual inflation, and said the Fed would monitor them carefully.
The dollar has dropped about 16 percent against a basket of currencies since mid-March, when economic worries were running high, sending investors in search of safe havens.
"These safe haven flows have abated, and the dollar has accordingly retraced its gains," Bernanke said.
The Fed slashed U.S. short-term interest rates to near zero in December and has pledged to keep them ultra low for a prolonged period to support a weak recovery.
Bernanke renewed that pledge but added that "significant changes" in economic conditions or the outlook could change the outlook for policy as well.
Financial conditions have improved since a year ago, but major challenges remain and future setbacks are possible, Bernanke said. Tight bank credit and high unemployment are the chief headwinds facing the economy, he said.
While there is early evidence of an economic recovery, how it will proceed once government stimulus measures dry up is uncertain, he said.
"My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely," he said. (Reporting by Mark Felsenthal; Editing by Chizu Nomiyama)