Federal Reserve chairman Ben Bernanke says the central bank is prepared to take steps to rejuvenate the U.S. economy through the purchase of treasury bonds but is wrestling with how big the program should be.

Federal Reserve chairman Ben Bernanke said U.S. inflation will be lower than projections for some time. (Manuel Balce Ceneta/Associated Press)

"There would appear — all else being equal — to be a case for further action," Bernanke said in a lengthy speech in Boston Friday morning.

The process, known as "quantitative easing" typically consists of the central bank buying U.S. government bonds, which allows it to pad its reserves and introduce new money into the system as stimulus.

The Fed's current benchmark rate is already at effectively zero, which limits the agency's ability to further stimulate the economy.

Bernanke said the Fed could use its communications powers to prevent the United States from slipping into a deflationary spiral.

He also noted that despite record-low interest rates, the Fed expects deflation — or at least disinflation — to remain a concern. "It is reasonable to forecast that underlying inflation will be less than the mandate-consistent inflation rate for some time," Bernanke said.

But Bernanke says the Fed must proceed cautiously in deciding how big a program to buy treasury debt should be. Bernanke said it is a challenge for Fed policymakers to determine the size of the program and how the debt purchases would be paced.

"In a world in which the policy interest rate is close to zero, the committee must consider the costs and risks associated with the use of nonconventional tools," Bernanke said.

Many economists predict the Fed will announce a new program at its next meeting Nov. 2-3.