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Congress is in charge here, not the Federal Reserve,” he said.

The economy’s challenges go beyond the budget impasse, Bernanke said. Lawmakers must also produce a long-term plan to shrink federal budget deficits. Otherwise, he said the United States could eventually suffer a financial crisis marked by rising interest rates. Consumers and businesses would have to pay more for mortgages and many other kinds of loans.

“It would be very costly to our economy,” Bernanke said.

Stocks rose sharply despite Bernanke’s grim assessment. The Dow Jones industrial average climbed more than 90 points, and broader indexes also gained.

The Fed chairman also said Europe’s debt crisis poses a serious threat to the U.S. economy. He said the Fed has been working with U.S. banks to ensure they’ve taken steps to prepare for a crisis.

“Although I have every hope and expectation that the European leaders will find solutions, there is a risk of a more serious financial blowup,” Bernanke said.

Investors had hoped Bernanke would signal another round of bond purchases, to drive down long-term interest rates and encourage more borrowing and spending. But they seemed to shrug off the downbeat outlook and focused on stronger earnings reported by Mattel, Coca-Cola and other big companies.

At least one senator implored Bernanke to take action now.

“Given the political realities of this year’s election, I believe the Fed is the only game in town,” Sen. Charles Schumer, D-N.Y., said. “I would urge you, now more than ever, to take whatever actions are warranted.”

“So get to work, Mr. Chairman,” Schumer added.

Even if the Fed announces another round of bond purchases, some economists question how much it might help. They note that mortgage rates and other key borrowing rates are already at record lows.

The economy was already sputtering when the Fed’s policymaking committee last met June 19-20. At that meeting, the Fed decided to extend a program that shifts its bond portfolio to try to lower long-term interest rates. The Fed also reiterated its plan to keep its key short-term interest rate near zero until at least late 2014.

Minutes of the June meeting show that Fed officials were open to taking further action — but were divided over whether the economy needs help now.

Former Fed official Roberto Perli, managing director at the research firm International Strategy & Investment, doubts the Fed will take action at its next meeting July 31-Aug. 1, preferring to wait for more evidence of where the economy is headed.

But if growth and job creation continue to weaken, he says, Fed policymakers might unveil another round of bond purchases at its Sept. 12-13 meeting.

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