The European strife “poses significant risks” to the United States and the Fed is watching and is ready to act if needed, Federal Reserve Board chairman Ben Bernanke testified to Congress Thursday.

“Nevertheless, the situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely,” Bernanke told Congress’ Joint Economic Committee, according to prepared text released by the Fed. “As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.”

Fiscal policy is also an issue holding back recovery. “Real federal government spending has also declined, on net, since the third quarter of last year, and the future course of federal fiscal policies remains quite uncertain,” he said.

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