US Federal Reserve Chairman Ben Bernanke says Europe's financial crisis still threatens the US recovery, and the Fed will do everything it can to protect against damage to the economy.

Chairman of the Federal Reserve Ben Bernanke holds a news conference at the William McChesney Martin Federal Reserve Board Building in Washington, January 25, 2012.

Bernanke told Congress he was seeing signs that some of the uncertainty limiting US business investment, including European banking woes, might be waning. But he said it was far too soon to say whether the US could remain unscathed.

Bernanke defended the US central bank's ultra-easy monetary policy from Republican criticism that it risked fuelling inflation and undermining the dollar.

The US economy accelerated in the fourth quarter and job growth has picked up, but the unemployment rate still stood at a lofty 8.5 percent in December - a level Bernanke made clear the US central bank was not satisfied with.

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