Federal Reserve Chairman Ben Bernanke once again urged Congress to address the looming fiscal cliff in remarks on Tuesday, with the Fed Chief warning that the central bank does not have the tools to offset the negative impact of the U.S. going over the cliff.

Bernanke noted that the automatic tax increases and spending cuts currently set to go into effect at the end of the year would pose a substantial threat to the economic recovery.

"Indeed, by the reckoning of the Congressional Budget Office (CBO) and that of many outside observers, a fiscal shock of that size would send the economy toppling back into recession," Bernanke said in remarks to the Economic Club of New York.

The Fed chairman noted that Congress also has to approve an increase in the federal debt limit to avoid a default and urged lawmakers to reach a timely agreement to avoid uncertainty.

He added, "Even as fiscal policymakers address the urgent issue of longer-run fiscal sustainability, they should not ignore a second key objective: to avoid unnecessarily adding to the headwinds that are already holding back the economic recovery."

However, Bernanke said that the objectives are "fully compatible and mutually reinforcing," noting that avoiding the fiscal cliff will support a stronger economy, which will in turn reduce the deficit and contribute to achieving long-term fiscal sustainability.

"At the same time, a credible plan to put the federal budget on a path that will be sustainable in the long run could help keep longer-term interest rates low and boost household and business confidence, thereby supporting economic growth today," he added.

Meanwhile, Bernanke warned that the Fed would not be able soften the full impact of the U.S. going over the fiscal cliff, noting that the central bank's powers are not "infinite."

"If the economy goes off the broad fiscal cliff, I don't think the Fed has the tools to offset that," Bernanke said during the question and answer portion.

In his prepared remarks, the Fed Chief suggested that the relatively slow economic recovery reflects the lingering effects of the financial crisis on U.S. productive potential as well as a number of headwinds that have hindered the normal cyclical adjustment of the economy.

"The Federal Reserve is doing its part by providing accommodative monetary policy to promote a stronger economic recovery in a context of price stability," Bernanke said.

He added, "As I have said before, however, while monetary policy can help support the economic recovery, it is by no means a panacea for our economic ills."

Bernanke noted that uncertainty about the situation in Europe and about the fiscal cliff are weighing on spending decision by both households and businesses and will only be increased by discord and delay.

"In contrast, cooperation and creativity to deliver fiscal clarity--in particular, a plan for resolving the nation's longer-term budgetary issues without harming the recovery--could help make the new year a very good one for the American economy," he concluded.

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