President Obama signs the Dodd-Frank Wall Street Reform Bill on Wednesday, July 21, 2010.

US Economy: Federal Reserve chairman Ben Bernanke told Congress that the economic outlook is  "unusually uncertain," and he is prepared to take further action to support the economy if the outlook deteriorates. However, he indicated the Fed's reluctance to do so, given limited options available and questions about the effectiveness of any new measures.

In his semiannual testimony to the Senate Banking Committee on Wednesday, Bernanke said the Fed still expects the economy to show moderate growth this year despite a "somewhat weaker outlook" that he attributed to financial market turmoil mainly to the sovereign debt crisis in Europe. He said the economic outlook remains unusually uncertain: "We will continue to carefully assess ongoing financial and economic developments, and we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation's productive potential in a context of price stability."

The Fed chairman didn't provide any specifics on further measures the central bank could take and in answering questions from senators, Bernanke outlined three options for supporting the economy, if necessary. The Fed could verbally emphasize its commitment to keep short-term interest rates low for a long time. It could lower the interest rate it pays on reserves that banks store at the central bank, to encourage more lending. And it could reinvest proceeds from maturing or prepaid mortgage securities, instead of letting them run off the Fed's balance sheet, or make additional purchases.

“We do still have options, but they are not going to be conventional options,” Bernanke said. However, he cautioned he’s confident the Fed won’t have to go down that road.

“Our main scenario” continues to project a “moderate recovery,” and even with the risks created by credit issues and high unemployment, a slide back into recession is unlikely, he said.

Bernanke couldn’t tell the committee which moves the Fed would choose, saying “we have not come to the point where we can tell you precisely what the leading options are.” But it’s important to note that he said that “we are not prepared to take any specific steps in the near term.”

In his testimony, Bernanke said the economic expansion that began in the middle of last year is proceeding at a moderate pace, supported by stimulative monetary and fiscal policies. Although fiscal policy and inventory restocking will likely be providing less impetus to the recovery than they have in recent quarters, rising demand from households and businesses should help sustain growth. In particular, real consumer spending appears to have expanded at about a 2-1/2 per cent annual rate in the first half of this year, with purchases of durable goods increasing especially rapidly. However, the housing market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction.

An important drag on household spending is the slow recovery in the labour market and the attendant uncertainty about job prospects.

Discussing why the markets didn't like what they heard from the Fed chairman, with Jim Lacamp, Macroportfolio Advisors; Andrew Busch, BMO Capital Markets Global; Sen. Judd Gregg, (R-NH) and CNBC's Steve Liesman:

Also on Capitol Hill on Wednesday, the Senate voted 59 to 39 Wednesday to restore emergency jobless benefits to millions of people who have been out of work for more than six months.

The bill when signed by President Obama will authorize states to provide retroactive support to an estimated 2.5 million people whose unemployment payments have been cut off since federal benefits expired on June 2nd. It would also make available up to 99 weeks of income support through the end of November to millions more who have exhausted state benefits, which typically last for 26 weeks.

Two Republicans voted for the measure and one Democrat, the multi-millionaire Sen. Ben Nelson of Nebraska, voted no.

Democrat Sen. Kent Conrad said in an interview Wednesday that Congress shouldn't allow taxes on the wealthy to rise until the economy is on a sounder footing.

Nelson, who opposed the extension of unemployment benefits to financially desperate victims of the recession, because of the impact on the budget deficit, also supports extending expiring tax cuts proposed by President George W. Bush in 2001.

CNBC's Steve Liesman has the details on whether the President dissed the Treasury Secretary!!