Bernanke told members of the U.S. Senate Committee on Banking, Housing and Urban Affairs in Washington that lowering key interest rates and expanded lending in recent months "have had positive effects."

However, "declining house prices, a softening labor market and rising prices of oil, food and some other commodities" present the economy with "numerous difficulties," he said.

Tighter credit and inflation of gas and food prices have lead to "restrained" consumer spending, Bernanke said.

The Fed now expects economic growth "to pick up gradually over the next two years as residential construction bottoms out and begins a slow recovery," he said.

Bernanke also said "helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve," a possible indication that the Fed will hold down interest rates in the near term.