Bernanke says the Fed has been quick to offset the impact of the credit crisis having cut rates 425 bp in just over one year. The impact on financial markets has been incomplete, resulting in other programs like supporting credit markets directly. His full speech is here.

Going forward, the Fed would like to undo the “too-big-to-fail” mindset that exists today.

The outlook is very weak near-term with a few bright spots, he says.

He raises the notion of quantitative ease, saying the Fed has ammo beyond the Fed funds rate. he characterized last week’s action this way:

First, the Fed could purchase longer-term Treasury or agency securities on the open market in substantial quantities. This approach might influence the yields on these securities, thus helping to spur aggregate demand. Indeed, last week the Fed announced plans to purchase up to $100 billion in GSE debt and up to $500 billion in GSE mortgage-backed securities over the next few quarters. It is encouraging that the announcement of that action was met by a fall in mortgage interest rates.

Look for the Fed to keep the pedal to the metal in the near-term, with an eye toward withdrawing liquidity when necessary.