WASHINGTON – Federal Reserve Chairman Ben Bernanke offered a mostly upbeat assessment of the economy Wednesday, citing improvements in inflation and housing in comments suggesting the Fed will leave interest rates alone for a while. Wall Street liked the message and propelled stocks sharply higher. The Dow Jones industrials gained 87.01 points to close at a new high of 12,741.86. Bernanke said that at present, interest rates are at a level that is “likely to foster sustainable economic growth and a gradual ebbing of core inflation.” “Overall, the U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes,” he said as he delivered the Fed’s economic report for the first time to a Democrat-controlled Congress. One is that inflation might flare, which is why the Fed is keeping open the option of a rate increase. It will “be some time before we can be confident that underlying inflation is moderating as anticipated,” Bernanke said. If inflation does not wane as the Fed expects, policymakers are “prepared to take action,” he said. On the other hand, there is the risk that a deeper than expected residential real-estate bust could yet unfold, which could hurt overall economic growth, Bernanke said. The committee chairman, Sen. Christopher Dodd, D-Conn., a 2008 presidential hopeful, and some colleagues said they thought Bernanke was doing a good job in managing the world’s largest economy. Even so, Democrats were vocal about their concerns about the middle class. 160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set! The Fed has held a key interest rate steady at 5.25 percent since August, giving borrowers a reprieve. Before that, the central bank steadily had raised rates for two years, the longest ever stretch of increases, to fend off inflation. Many economists said Bernanke’s testimony to the Senate Banking, Housing and Urban Affairs Committee buttressed their belief that the Fed will continue to hold rates steady for much of this year. Still, Bernanke was not prepared to declare victory over inflation just yet. Thus, he did not close the door on the possibility of further rate increases down the road. The Fed chief was careful to hedge his bets and pointed out risks that could upset the generally good economic outlook.