The US Federal Reserve chairman has said the country's economy is showing sign of improvement - but steps must be taken to prevent job losses from undermining a recovery.

"Better conditions in financial markets have been accompanied by some improvement in economic prospects," Ben Bernanke said as he delivered the central bank's's semi-annual report to the US congress on Tuesday.

"Despite these positive signs, the rate of job loss remains high," he said.

Easy access to money for economic stimulus plans is necessary if the US recession is to be tackled effectively, Bernanke added.

Aggressive policies

"In light of the substantial economic slack and limited inflation pressures, monetary policy remains focused on fostering economic recovery," he said.

"A highly accommodative stance of monetary policy will be appropriate for an extended period."

The Federal Reserve has already set the US interest rate at close to zero in an attempt to encourage consumer spending, while pursuing aggressive economic stimulus policies.

The central bank's programme of massive lending has concerned some economists and policy analysts who say inflation could rise rapidly once the economy begins to recover.

Dramatic increase

But Bernanke said that the Fed is working on a plan to prevent the trillion dollar economic stimulus programme from sparking a dramatic increase in inflation.

The effort to kickstart the US economy in the wake of the credit crunch and the recession "can be withdrawn [after the economy recovers] in a smooth and timely manner as needed, thereby avoiding the risk that policy stimulus could lead to a future rise in inflation," he said.

The Federal Open Market Committee "has been devoting considerable attention to issues relating to its exit strategy, and we are confident that we have the necessary tools to implement that strategy when appropriate".

Bernanke said an increase in the rate of inflation that the Fed pays to banks who place deposits in the central bank could also help arrest inflation.

By raising the amount of interest it pays, the Fed can encourage banks to deposit excess funds at the central bank, to maintain liquidity.