Bernanke: Economy faces 'numerous difficulties'

WASHINGTON — Federal Reserve Chairman Ben Bernanke testifies for a second day before Congress amid a backdrop of fading confidence in the U.S. economy.

The Fed chief appears before the House Financial Services Committee on Wednesday — one day after delivering a sober assessment of the country's economic problems to lawmakers on the Senate side.

Caught between risky cross currents of plodding growth and rising inflation, Fed policymakers are facing "significant challenges" as they try to find a way to right the economy, Bernanke told the Senate Banking Committee on Tuesday.

The Fed can't afford to lower rates again to shore things up because it will aggravate inflation. On the other hand, boosting rates to fend off higher prices would deal a setback to the fragile economy and the already crippled housing market.

Against that background, most economists predict Bernanke and his colleagues will leave rates alone when it meets next on Aug. 5.

It's difficult to chart a course when uncertainty abounds, Bernanke said.

Over the rest of this year, the economy will grow "appreciably below its trend rate" mostly because of continued weakness in housing markets, high energy prices and tight credit conditions.

At the same time, inflation has remained high and "seems likely to move temporarily higher in the near term," Bernanke warned lawmakers.

On that front, consumer prices jumped 1.1 percent in June, the fastest pace since September 2005, the government reported Wednesday. Another report, from the Fed, showed industrial production rising 0.5 percent in June. However, the increase reflected an end to an automotive production strike rather than any widespread strength in the economy.

On Tuesday, the Labor Department reported wholesale prices, driven by skyrocketing gas and food costs, rose 9.2 percent in the 12 months ending June — the fastest in a quarter-century.

"The economy continues to face numerous difficulties, including ongoing strains in financial markets, declining housing prices, a softening labor market and rising prices of oil, food and other commodities," Bernanke said Tuesday.

Righting wobbly financial markets is another important consideration to getting the economy back on track, he said.