Federal Reserve Chairman Ben Bernanke signaled today that he’s comfortable with current interest rate levels but stands ready to resume rate increases if inflation doesn’t moderate as the Fed expects.

“So far, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing of core inflation,” Bernanke said in prepared testimony to the Senate Banking Committee.

However, Bernanke said twice in his prepared remarks that the Fed’s “predominant” concern is that inflation won’t come down as expected, and cautioned that the central bank is “prepared to take action to address inflation risks if developments warrant.”

The Fed has kept interest rates steady at 5.25% since last summer, a stretch covering five Federal Open Market Committee meetings, and is widely expected to keep them steady at least through the middle of this year.

While inflationary pressures “are beginning to diminish,” Mr. Bernanke cautioned that monthly data are “noisy” and it will “be some time before we can be confident that underlying inflation is moderating as anticipated.”

Bernanke said the U.S. should post “moderate” economic growth this year and next. According to the Fed’s forecasts, , gross domestic product should expand between 2.5% and 3% this year and 2.75% to 3% in 2008.

But Bernanke cautioned that “the risks to this outlook are significant.” The housing sector remains a downside risk, he said, despite “tentative” signs of stabilization. He explained that even if housing demand stabilizes, it will continue to weigh on growth as homebuilders reduce their inventories of unsold homes.

On the other hand, consumer spending, which was “brisk” in the second half of 2006, is an upside risk to growth, Bernanke said. Household finances remain in good shape, he said, though delinquency rates for subprime mortgages with variable rates “have increased appreciably.”

The business sector, meanwhile, is in “excellent” financial shape, Bernanke said, and capital spending should grow at a “moderate pace.”