(Reuters) - The U.S. economy would have to strengthen to ensure that the unacceptably high jobless rate keeps dropping, Federal Reserve Chairman Ben Bernanke said on Wednesday, suggesting the option of further Fed bond buying remains on the table.

The job market is far from normal, Bernanke told a congressional panel. Continued improvement ... is likely to require stronger growth in final demand and production.

The swift decline in the U.S. unemployment rate in recent months, to a three-year low of 8.3 percent in January from 9.1 percent in August, has surprised economists both within and outside the Fed given the economy's relatively soft performance.

The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that time frame at or below its longer-term trend, Bernanke told the House of Representatives Financial Services Committee.

The dovish tone of Bernanke's remarks suggest the central bank continues to evaluate whether the economic recovery could use a further dose of monetary stimulus, although the Fed chairman offered no clear signal.

Was he dovish? Absolutely, he has to be. Otherwise, he risks undoing all the policy initiatives he has crafted to press long-term (interest) rates lower, said Eric Green, an analyst with TD Securities in New York.

The central bank cut overnight interest rates to near zero in 2008 and has bought $2.3 trillion in bonds since then in a further effort to spur the economy.

After its last meeting in late-January, it said rates would stay exceptionally low through late 2014.

In a news conference following the meeting, Bernanke left open the possibility the central bank could buy more bonds if the recovery faltered or if inflation slid well below the Fed's 2 percent target.

Sustaining a highly accommodative monetary policy stance is consistent with the Fed's goals of achieving full employment with low and steady inflation, he said in his testimony on Wednesday.

SAYS OIL CUTS BOTH WAYS

A recent rise in oil prices due to geopolitical tensions may raise inflation for a time and curb consumption, Bernanke said.

Gasoline prices have moved up ... a development that is likely to push up inflation temporarily while reducing consumers' purchasing power, he said.

Strong jobs and factory data since the Fed last met has eased worries U.S. growth would slow sharply early this year, but tensions between Western nations and Iran have escalated, threatening a repeat of 2011 when a spike in energy prices hit the recovery hard.

Nervousness about oil supply has pushed crude oil prices to 10-month highs. In the United States, gasoline prices are rising toward $4 a gallon, posing a risk to the recovery and leaving President Barack Obama open to criticism from Republicans on the campaign trail ahead of November's election.

Average U.S. retail gasoline prices are now at nearly $3.72 per gallon, up from $3.37 a year ago. If tensions with Iran, a major producer, continue into the U.S. summer driving season, prices at the pump could rise more.

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