Bernanke: Recovery Slower Than Expected

(Bernanke speech article updated with additional commentary, quotes and stock prices.)

JACKSON HOLE, Wy. (TheStreet) -- Federal Reserve Chairman Ben Bernanke said that "for much of the world, the task of economic recovery and repair remains far from complete," but he expects the U.S. economy will continue to grow in the second half of this year and into 2011, "albeit at a relatively modest pace."

Speaking at the annual Federal Reserve symposium in Jackson Hole, Wy. Friday morning, Bernanke conceded that "in many countries, including the United States and most other advanced industrial nations, growth during the past year has been too slow and joblessness remains too high."

Wall Street reacted quickly. The major indexed dipped Friday morning just as Bernanke began his speech, but swiftly returned to positive territory, closing the day sharply higher. The SPDR S&P 500(SPY), an exchange-traded fund that tracks the broad-based S&P 500 index, rose 1.6% at the closing bell. The SPDR Dow Jones Industrial Average(DIA) and PowerShares QQQ Trust(QQQQ) added 1.7% and 1.2%, respectively.

Bernanke indicated the Fed may implement large purchases of longer-term debts if needed to prevent the economy from falling further. "I believe that additional purchases of longer-term securities, should the [Federal Open Market Committee] choose to take them, would be effective in further easing financial conditions," he said.

The Bernanke-led F.O.M.C. is the policy-setting arm of the Federal Reserve.

Bernanke said deflation was "not a significant risk for the United States at this time," and that "the F.O.M.C. will strongly resist deviations from price stability in the downward direction."

"Stronger household finances, rising incomes, and some easing of credit conditions will provide the basis for more-rapid growth in household spending next year," he said.

Robert Pavlik, chief market strategist at Banyan Partners, said "Bernanke fulfilled his fatherly role to the markets, saying things are tough, but they're not that bad. And he said if things get worse, 'I've got some ideas. I've got some ways to address the market.'"

"He's telling us what we want to hear. [The economy is] not the greatest, but it's not the worst. When you read the summary of Bernanke's speech , it's not that great. But read the whole thing, and it's not that bad," Pavlik said.

Investors were eager to hear the chairman's outlook on the economy in light of a roster of mixed and often disappointing economic data recently released -- particularly in the housing market. Market watchers were also hoping the chairman would address whether he believes the recovery remains intact and what policy tools can be used to bolster the economy.

The U.S. economy is still in a soft patch but a double-dip recession is unlikely, St. Louis Federal Reserve Chairman James Bullard said in appearance on CNBC Friday morning. He said we're in a difficult period for formulation monetary policy and that the recovery has gone "reasonably well" until it slowed down this spring given the severity of the shock of the financial crisis in 2008.