Bernanke said the debt crisis in Europe, which has rattled Wall Street, played a role in the Fed's "somewhat weaker outlook." Although financial markets have improved considerably since the depth of the financial crisis in the fall of 2008, conditions have become "less supportive of economic growth in recent months," he explained.
As a result, Bernanke said progress in reducing the nation's unemployment rate, now at 9.5 percent, is now expected to be "somewhat slower" than thought. Unemployment is expect to stay high, in the 9 percent range, through the end of this year, under the Fed's forecast.
High unemployment is a drag on household spending, Bernanke said, although he believed both consumers and businesses would spend enough to keep the recovery intact.
Bernanke also said it would take a "significant amount of time" to restore the nearly 8.5 million jobs wiped out over 2008 and 2009.
And, Bernanke said the housing market remains "weak" and noted that the overhang of vacant or foreclosed houses are weighing on home prices and home construction.
Given the weak recovery, inflation is not a problem, Bernanke said. However, Bernanke didn't talk about deflation, a prolonged and destabilizing drop in prices for goods, the values of stocks and homes and in wages. Although most economists think the prospects of deflation are remote, some Fed officials have expressed concern about it.
To strengthen the economy, many economists predict the Fed will hold a key bank lending rate at a record low near zero well into 2011, or possibly into 2012. Doing so, would help nip any deflationary forces.
And keeping that bank rate at super low levels also would mean rates on certain credit cards, home equity loans, some adjustable-rate mortgages and other consumer loans would stay at their lowest point in decades.
Ultra-low lending rates, however, haven't done much lately to rev up the economy. Consumers and businesses are cautious and aren't showing an appetite to spend as lavishly as they usually do in the early stages of economic recoveries.
Bernanke, meanwhile, welcomed Congress' new revamp of financial regulations signed into law by President Barack Obamaon Wednesday. The new law, he said, "will place our financial system on a sounder foundation and minimize the risk of a repetition of the devastating events of the past three years."