Federal Reserve Chairman Ben S. Bernanke said the economy is atrisk from Europe's debt crisis and the prospect of fiscaltightening in the U.S., while refraining from discussing steps thecentral bank might take to protect the expansion.

“The situation in Europe poses significant risks to the U.S.financial system and economy and must be monitored closely,”Bernanke said today in testimony to the Joint Economic Committee inWashington. “As always, the Federal Reserve remains prepared totake action as needed to protect the U.S. financial system andeconomy in the event that financial stresses escalate.”

Bernanke also warned lawmakers that “a severe tightening offiscal policy at the beginning of next year that is built intocurrent law — the so-called fiscal cliff — would, if allowed tooccur, pose a significant threat to the recovery.”