Federal Reserve Bank Chairman Ben Bernanke offered a mixed assessment of the U.S. economy, amid concerns about unemployment and a looming debt ceiling deadline.
Bernanke, providing the Fed's semiannual report on the state of the U.S. economy to Congress Wednesday, said the Fed should remain in a holding pattern as officials seek to get a clearer picture of the economy.
Bernanke's assessment came as President Barack Obama and congressional leaders worked to strike a deal that would raise the debt ceiling and reduce the country's deficit by Aug. 2, when officials say the United States would be in default.
While Fed officials expect economic growth to pick up over time, Bernanke acknowledged the pace of the recovery has been modest in recent months.
"After increasing at an annual rate of 2 3/4 percent in the second half of 2010, real gross domestic product rose at about a 2 percent rate in the first quarter of this year, and incoming data suggest that the pace of recovery remained soft in the spring," Bernanke said.
Simultaneously, the unemployment rate -- which had been trending downward for several months -- moved back above 9 percent.
While Fed officials expect the pace of the economic recovery to pick up in the coming quarters, Bernanke warned of "headwinds" that are affecting the recovery, including the slow growth in consumer spending, the depressed housing sector; still-limited access to credit for some households and small businesses, and fiscal tightening at all levels of government.
Concerning the jobless rate, Bernanke said the central bank's Federal Open Market Committee participants expected that the rate will decline, "albeit only slowly."
"The central tendencies of [FOMC] participants' forecasts for the unemployment rate were 8.6-to-8.9 percent for the fourth quarter of this year, 7.8-to-8.2 percent at the end of 2012, and 7.0-to-7.5 percent at the end of 2013," the chairman said.
The economy's ability to recover more quickly rests with consumers, he said. Despite a still-troubled housing market, consumers should benefit from expected drops in food and energy prices as well as improved economic conditions.
"The anticipated pickups in economic activity and job creation, together with the expected easing of price pressures, should bolster real household income, confidence, and spending in the medium run," he said.
Bernanke also stressed the Fed was ready to act if the economic malaise persisted or if it needed to tighten monetary policy quickly.
"The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might re-emerge, implying a need for additional policy support," Bernanke said.