His remarks raised two questions: What exactly will the Fed do? And when?
Bernanke described the U.S. economy's health as "far from satisfactory" and noted that the unemployment rate, now 8.3 percent, hasn't declined since January.
He stopped short of committing the Fed to any specific move. But in his speech to an annual Fed conference in Jackson Hole, Wyo., Bernanke said that even with interest rates already at super-lows, the Fed can do more.
He acknowledged critics' arguments that further Fed action could fan inflation and inject other risks. Yet after raising such arguments, Bernanke proceeded to knock them down.
Some economists predict the Fed will unveil some bold new steps as soon as its Sept. 12-13 meeting, possibly a third round of bond purchases meant to lower long-term interest rates and encourage more borrowing and spending. That policy is called "quantitative easing," or QE.
In two rounds of QE, the Fed bought more than $2 trillion of Treasury bonds and mortgage-backed securities. Many investors have been hoping for a third round -- a QE3.
"Bernanke has taken a further step along the path to more policy stimulus, most likely a third round of asset purchases [QE3] to be announced at the mid-September FOMC meeting," said Paul Dales, senior U.S. economist at Capital Economics.
Others expect something less dramatic: a plan to keep short-term rates near zero into 2015 unless the economy improves, perhaps followed by bond purchases later.
In his speech, Bernanke assessed the economy's weaknesses, defended the extraordinary steps the Fed has taken to date and insisted it can do more. He acknowledged the Fed is operating in uncharted territory.
Investors took time to digest Bernanke's speech but in the end seemed pleased.
After his remarks were released at 10 a.m. Eastern time, the Dow Jones industrial average shed some of its earlier gains. Then it rose more than 100 points. It closed up about 90 points, or 0.7 percent.