WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke said Wednesday that the central bank is prepared to provide additional stimulus if the current economic lull persists.
The government reached its borrowing limit in May. The Treasury Department has said that the government will default on its debt if the limit is not raised by Aug. 2.
The Fed last month agreed to end on schedule its program to boost the economy through the purchase of $600 billion in Treasury bonds. But the central bank acknowledged that the economy had slowed in the first half of the year. As a result, it lowered its economic growth forecast for 2011 and said unemployment wouldn't fall below 8.6 percent this year.
Since that meeting, the government reported a second straight month of dismal hiring in June and the unemployment rate rose to 9.2 percent -- the highest rate this year.
The Fed has said that temporary factors, such as high gas prices and supply chain disruptions caused by the Japan crisis, are partly to blame for the sluggish period.
Bernanke told Congress that the Fed believes those impediments should ease in the second half of the year. But if that forecast proves wrong, he said the Fed is prepared to do more.
"The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might re-emerge, implying a need for additional policy support," Bernanke said.
Economists noted that Bernanke was careful to balance the possibility of further Fed stimulus with the possibility that inflation could become a problem.
Paul Ashworth, chief U.S. economist at Capital Economics, said the Fed would likely hold off on further steps unless deflation emerges as a threat again. Ashworth said any decision would not come until next year.
"The Fed wants to wait and see if the drop off in economic growth was due to transitory factors and whether inflation drops back," Ashworth said.