WASHINGTON (AP) - New signs emerged Wednesday that the economic rebound is sputtering. Sales of new homes hit a record low last month. And mortgage giant Freddie Mac signaled it will need more federal aid - and might never repay it.
Against that backdrop, the government is trying to prop up the housing and job markets. Federal Reserve Chairman Ben Bernanke reiterated the need to continue record-low interest rates for "an extended period." And the Senate passed a bill to give tax breaks to companies that hire the jobless.
Bernanke told Congress that low rates will help ensure that the recovery will last and help ease the sting of high unemployment. Asked what else Congress could do to stimulate job creation, he hesitated to say.
"I'm sure you know the menu of things that you could do which could create jobs," he said. "Unfortunately there's no - there's no silver bullet here."
Investors seemed buoyed by Bernanke's commitment to low rates, despite the news on home sales and Freddie Mac. The Dow Jones industrial average gained about 91 points, roughly 0.9 percent.
Yet economists cautioned that the government's ability to help is limited.
"Our view is that it will be a long, tough slog for U.S. consumers in particular and for the economy overall," said Sal Guatieri, senior economist at BMO Capital Markets.
Bernanke, in his twice-a-year report to the House Financial Services Committee, said the rebound would endure. But he also sought to restrain hopes. He said the Fed sees moderate growth that will cause only a slow decline in the nearly double-digit jobless rate.
He offered no new clues about when the Fed would eventually raise interest rates. Most economists think it's months away.
Bernanke faces more pressure than usual from lawmakers in an election year. Their constituents are struggling, while bailed-out Wall Street banks are profitable again. Unemployment stands at 9.7 percent, home foreclosures are at record highs and people and businesses are having trouble getting loans.
Underscoring the fragility of the housing market, the government said new-home sales dropped 11 percent last month, to a seasonally adjusted annual pace of 309,000 units. That's the lowest level in the nearly 50 years records have been kept.
Winter storms were partly to blame. But sales have dropped for three straight months despite vast government support. Economists had already been worrying about how the housing market would respond once government aid programs are withdrawn.
One such program has lowered mortgage rates and bolstered the housing market but is slated to end March 31. Under the program, the Fed has committed $1.25 trillion to buying mortgage securities and debt from Freddie Mac and its sister mortgage finance firm Fannie Mae.
Bernanke said that program's end would have only a "modest effect" on raising mortgage rates. He left the door open to extending the program if the housing market or the economy worsened.
Freddie Mac's earnings report was grim news for taxpayers, who have had to rescue the company and Fannie Mae. The company lost nearly $26 billion last year and nearly $80 billion since 2007. A record proportion of its borrowers - 4 percent - face foreclosure. And its chief executive warned of many more foreclosures still to come.
And Freddie Mac said it will likely need more federal aid beyond the $51 billion it's already received and may not be able to repay it.
Fannie and Freddie are vital players in the industry. They buy loans from lenders and sell them to investors. Combined, they own or guarantee about half of all residential mortgages. Had they gone broke in 2008, millions of people would have been unable to get mortgages.
Freddie and Fannie have already soaked up $111 billion from the government, which seized control of them in September 2008. That number is expected to hit $188 billion by the fall of 2011.
"We now have unlimited taxpayer exposure to the bailout of Fannie and Freddie, a bailout nation where the big get bigger, the small get smaller and the taxpayer gets poorer," Rep. Jeb Hensarling, R-Texas, said at a House hearing.
The Obama administration had been expected to announce plans to overhaul Freddie Mac and Fannie Mae this month when it submitted its 2011 budget request. But Treasury Secretary Timothy Geithner said Wednesday that won't happen until next year.
"We want to make sure that we are proposing these changes at a time when we have a little bit more distance from the worst housing crisis in generations," told the House Budget Committee.
Geithner also defended the administration's stimulus plan, saying that before the government can shrink its budget deficit, it must help create jobs and aid the recovery.
Bernanke and Geithner testified as President Barack Obama struggles to manage both high unemployment and rising budget deficits. Under Obama's budget plan, unemployment would still hover near double digits, and this year's deficit would reach $1.56 trillion.
The Fed chairman reiterated a pledge that the Fed will keep its main rate at an all-time low near zero for an "extended period." Low inflation has given the Fed room to keep rates low. Consumer prices excluding food and energy fell in January - the first time such prices have fallen in any month since 1982.
At the same time, Bernanke sought to stress that once the economy is on firmer footing and the Fed needs to reverse course and tighten credit for millions of Americans, he will do so.
Deciding when to boost rates is a high-risk calculation. Acting too soon could derail the recovery. But waiting too long could trigger inflation and feed a speculative bubble in some financial asset. That, too, could threaten the economy, along with Americans' pocketbooks and nest eggs.
Bernanke would only say that "at some point," the Fed will need to move to tighten credit. Whenever it does, consumers and businesses would have to pay more for loans.
Potentially complicating the U.S. rebound is the debt crisis in Greece, which has already sent jitters through Wall Street and could spread to other European Union countries with troubled finances such as Portugal, Spain and Italy. Standard & Poor's warned Wednesday it might further downgrade Greece's credit rating within a month. A downgrade would make it harder and costlier for Greece to borrow.
Pressed by Rep. Ron Paul, R-Texas, on whether the Fed has discussed a bailout of Greece, which is suffering a debt crisis, Bernanke said no.
Another threat comes from the banking industry. The number of U.S. banks considered troubled jumped above 700 last quarter. And loan defaults could escalate the wave of bank failures that totaled 140 last year, the most since 1992.
Also, despite evidence that the thrift industry may be stabilizing, the Office of Thrift Supervision noted Wednesday that 20 thrifts failed last year and that the number is expected to rise this year because of delinquencies and foreclosures.
Lawmakers who questioned Geithner on Wednesday expressed concern about record-high federal budget deficits, which Bernanke and Geithner both said must be reduced over time.
The deficits are the "elephant in the room," said Rep. Spencer Bachus of Alabama, the committee's senior Republican.
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AP business writers Martin Crutsinger and Alan Zibel contributed to this report.