Fed Chief Paints Bleak Economic Outlook

The US economy will continue to face "numerous difficulties" with no sign of easing over the next two years was the depressing message delivered to Senators by Federal Reserve Chairman, Ben Bernanke on Tuesday.

"The effects of the housing contraction and of the financial head winds on spending and economic activity have been compounded by rapid increases in the prices of energy and other commodities, which have sapped household purchasing power even as they have boosted inflation," Bernanke said.

He added, "Against this backdrop, economic activity has advanced at a sluggish pace during the first half of this year, while inflation has remained elevated."

Bernanke is due to appear before the House Services Committee on Wednesday, but also expressed concerns about rising inflation risks due to high commodity prices, hinting that the Fed might be reluctant to support economic growth because of the risk they would feed inflation pressures.

Bernanke's comments contrast sharply with President George W Bush who has tried to downplay the crisis saying, "Despite the challenges we face, out economy has demonstrated remarkable resilience...We will come through this challenge stronger than ever before."

In his address to the Senate, Bernanke did stress a greater need to tackle uncertainty within the housing market, which he believes is largely behind both the financial markets and economic stresses.