While moderate economic recovery continues, and should do so into next year, “significant restraints” still hold back the pace of recovery, Federal Reserve Board chairman Ben Bernanke testified yesterday.

The restraints include housing, where “sales and construction have been temporarily boosted lately by the homebuyer tax credit,” Bernanke told the House Budget Committee, according to a prepared text released by the Fed.

“But looking through these temporary movements, underlying housing activity appears to have firmed only a little since mid-2009, with activity being weighed down, in part, by a large inventory of distressed or vacant existing houses and by the difficulties of many builders in obtaining credit,” he said.

“Spending on nonresidential buildings also is being held back by high vacancy rates, low property prices, and strained credit conditions,” Bernanke said. “Meanwhile, pressures on state and local budgets, though tempered somewhat by ongoing federal support, have led these governments to make further cuts in employment and construction spending.”

The labor market also continues to restrain growth, he said, while inflation is “subdued.”

Despite swings based on volatile food and energy prices, the Fed chief said, “a moderation in inflation has been clear and broadly based over this period. To date, long-run inflation expectations have been stable, with most survey-based measures remaining within the narrow ranges that have prevailed for the past few years.”

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