This article is more than 8 years old

This article is more than 8 years old

Federal reserve chairman Ben Bernanke has warned that US economic recovery is "close to faltering", and that a "disorderly" default in the Greek debt would have a serious impact.

In testimony to Congress, Bernanke was repeatedly quizzed about the impact of the European crisis on America. He said the US was an "innocent bystander" in the eurozone debt standoff and that US banks were not heavily exposed to Europe's most troubled economies.

But he warned that Europe's economic woes were already having a negative impact on US stock markets. "Unless the European situation is brought under control, it could be a much more serious situation for the US economy," he said.

Bernanke also warned that political warfare in Washington was a threat to the US economy. He told the Joint Economic committee that the recent row over raising the debt ceiling had been very unhelpful at a time of increasing economic uncertainty. "It's no way to run a railroad," he said.

In written testimony and during a question-and-answer session, Bernanke told Congress that the Federal reserve had acted forcefully to support growth and was prepared to take further action if necessary.

His comments, alongside news that European finance ministers were working on plans to support the region's banks, cheered US investors. After Europe's stock markets closed down US stock markets rallied in late trading. The Dow Jones Industrial Average closed up 153 points at 10808 having fallen 253 points earlier in the day.

But Bernanke warned that political infighting was a risk to the fragile US economic recovery.

"Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the US economy," he said. "Fostering healthy growth and job creation is a shared responsibility of all economic policymakers."

Bernanke was asked about the Occupy Wall Street protests, now in their third week in New York and spreading across the US. "I would just say that very generally people are quite unhappy about the state of the economy," said Bernanke, and with "some justification".

"At some level I can't blame them. Nine percent unemployment and slow growth is not a good situation," he said.

Senator Bernie Sanders of Vermont asked Bernanke: "In light of the protests, did Wall Street's greed and recklessness lead to the crisis?"

Bernanke said: "Excessive risk-taking had a lot to do with it." So did the failures of regulators, he said.

Bernanke said the US economy had grown more slowly than expected, in part because of unexpected setbacks like the Japanese earthquake and Europe's debt crisis – but also because of the US's own problems, especially in the jobs market. "The recovery from the crisis has been much less robust than we hoped."

"Probably the most significant factor depressing consumer confidence, however, has been the poor performance of the job market," Bernanke said.

"Private payrolls rose by only about 100,000 jobs per month on average over the summer — half of the rate posted earlier in the year – and state and local governments have continued to shed jobs," he said.

Moreover, recent indicators, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead, he said.

"We need to make sure that the recovery continues and doesn't drop back," Bernanke added.