By Mark Felsenthal
FORT BLISS, Texas (Reuters) - Defending the Federal Reserve on the turf of his harshest critics, U.S. central bank chief Ben Bernanke on Thursday said the Fed was "intently" focused on lowering unemployment and warned that strains from Europe could trigger global economic shocks.
"For a lot of people, I know, it doesn't feel like the recession ever ended," Bernanke said at a town hall-style forum at an Army base outside of the Texas border town of El Paso.
"I'm not a believer in the Old Testament theory of business cycles. I think that if we can help people, we need to help people."
The Fed, and Bernanke in particular, has drawn fire from conservatives fearful the central bank's aggressive easing of monetary policy could debase the U.S. dollar and send inflation soaring.
Two of the harshest critics are Texans and Republican presidential candidates: Governor Rick Perry and Representative Ron Paul.
Paul authored a book titled "End the Fed," while Perry has equated Fed policy with treason and suggested Texans might treat Bernanke "pretty ugly" if he were to visit.
Bernanke, who met troops returning from Iraq at 2:45 a.m., used the military backdrop to defend the central bank's aggressive policies and rebut charges it was recklessly spending government money.
Several soldiers asked how simmering euro zone sovereign debt turmoil might affect the U.S. economy, and Bernanke told them it was important European leaders contain the crisis, which some see as the main risk to the U.S. recovery.
"Although the Fed would obviously do all that we could to maintain stability and to keep monetary policy as easy as necessary to try to minimize the damage, I don't think we would be able to escape the consequences of a blow-up in Europe," he told his audience of 175 military personnel and family members.
WORKING ON A CRISIS
Bernanke, who has called the high level of long-term unemployment in the United States a national crisis, made clear that policymakers were still focused on lowering the 9 percent jobless rate, but he warned it will take time to bring it to more normal levels.
"We at the Federal Reserve have been focusing intently on supporting job creation. Supporting job creation is half of our marching orders, so to speak," he said.
The Fed's other mandate is to keep inflation in check. Bernanke said inflation should moderate and remain close to the Fed's preferred level of 2 percent or a bit less for the foreseeable future.
The central bank cut benchmark borrowing costs close to zero in December 2008 and has bought more than $2.3 trillion in bonds to try to spur a more vigorous recovery.
Bernanke, whose remarks were punctuated on occasion by the fussing and chattering of young children, defended the Fed's unconventional bond-buying.
"It is important to understand that this type of activity isn't the same as government spending," he said, explaining that the central bank would either sell the securities back into the markets or hold them to maturity. He also pointed out that the Fed's portfolio earnings helped reduce the federal budget gap.
He also dismissed Paul's views on abolishing the central bank. "The Federal Reserve is not perfect ... but at this point, if you look around the world, you see no alternative."
Bernanke, who looked relaxed as he fielded questions from an audience largely dressed in olive camouflage fatigues, came into office in 2006, when George W. Bush was president, vowing to throw more light on the operations of the long-secretive central bank. Many analysts think he accelerated his efforts in an attempt to insulate the Fed from popular anger.
While Republicans have warned about inflation, Democrats have decried bailouts for banks during the financial crisis.
Bernanke's first town hall was in 2009 as bailout anger was reaching a crescendo. Thursday's event was only his second such meeting.
Army Major Rob Steffel said the visit showed a willingness to meet criticism head on. "He's doing this because he wants to reach out and answer questions," Steffel said. "There are a lot of fallacies out there, and I think he's trying to dispel rumors and give people confidence in the system and the direction the economy's going."
Asked by Fox Business if he were campaigning for something as he greeted soldiers from Iraq arriving on the tarmac, Bernanke replied: "Absolutely not. I just want to talk to the troops."