Federal Reserve Board Chairman Ben Bernanke prepares to testify before the House Financial Services Committee hearing on "Monetary Policy and the State of the Economy" on Capitol Hill in Washington, DC, on July13, 2011. UPI/Roger L. Wollenberg | License Photo

WASHINGTON, July 13 (UPI) -- U.S. Federal Reserve Chairman Ben Bernanke made it clear Wednesday that further stimulus for the U.S. economy is "an option on the table."

Bernanke told a U.S. House of Representatives committee that recent economic weakness may prove more persistent than expected and that deflationary risks might re-emerge, which could require additional policy support.


"We don't know where the economy is going to go," Bernanke said in his semiannual report to Congress on the economy and monetary policy. "If we get to a point where the economy recovery is faltering and we are looking at the inflation dropping down toward zero, then we have to look at all the options."

The "weaker-than-expected" economic performance in the first half of this year and the disappointing unemployment number that rose to 9.2 percent in June are evidence that the economy may not have sufficient momentum, he said.

Last month, the Fed cut its forecast for economic growth in 2011 to a range of 2.7 percent to 2.9 percent compared with its previous expectation of a growth rate of 3.1 percent to 3.3 percent.

Bernanke's remarks before the House Financial Services Committee echoed other Fed policy makers' openness to the possibility of another round of stimulus spending.

"A few members noted that, depending on how economic conditions evolve, the committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run," the recently released Fed's June 21-22 policy meeting minutes state.

U.S. financial leaders have twice turned to "quantitative easing" -- known colloquially as "QE" -- a strategy in which the government buys assets from financial institutions with newly created funds in an effort to spur the national economy.

"QE3 might help the financial market, but it wouldn't do much to the economy, but I see it coming," said Adolfo Laurenti, deputy chief economist at Mesirow Financial Inc.

Bernanke said that "the jobless rate will decline -- albeit only slowly -- toward its longer-term normal level."

The Fed forecasts that the unemployment rate will drop to 7.8 to 8.2 percent at the end of 2012, and 7.0 to 7.5 percent at the end of 2013. The rate in June was 9.2 percent. It hasn't been as low as 7.8 percent since January 2009, when it was 7.6 percent.

"Confidence is crucial. It's important for us to believe in ourselves, to believe in our future, and to believe that it will get better," said U.S. Rep. Spencer Bachus, R-Ala., and chairman of the Financial Services Committee, in addressing the uncertainty and lack of confidence that are impeding the recovery.

Both Republicans and Democrats on the committee pressed Bernanke to take a position on deficit reduction.

Politely dodging the "spending cut or tax increase" questions, the Fed chairman stressed that the Congress and the president need to be "a little bit cautious" about sharp cuts in the very near term because of the potential impact on any recovery.

Even in the longer term, Bernanke said, Congress should be sure any cuts would help the economy grow.

"We don't want to just cut, cut, cut," he said.