In his opening statement to a committee in Congress yesterday, Bernanke said the bleak issues must be dealt with “sooner rather than later.”

“We are looking very carefully at the economy, trying to judge whether or not the loss of momentum we've seen recently is enduring, and whether or not the economy is likely to continue to make progress,” he said to Washington. “The most effective way that Congress could help to support the economy right now would be to work to address the nation's fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery.”

Bernanke said that the first half of the year showed a disappointing decelerated pace of economic growth but he remained guarded over any plans to incite quantitative easing.

Instead, he outlined several options of easing tools that could be introduced, including the use of so-called ‘discount windows' for direct lending to banks. Different types of purchase programmes like Treasuries and mortgage-backed securities could also be a logical solution.

“We haven't really come to a specific choice at this point,” he said.

Slow progress is being made in reducing an 8.2 percent unemployment rate in the US, with overall net job creation in June falling to 80,000. According to Bloomberg, the most recent economic data “shows the recovery is cooling,” with falls in consumer retail sales for the third consecutive month.

Bernanke also told the Senate it's not clear yet whether any US banks were involved in the Libor rates scandal, but said the misreporting of the benchmark is “very troubling,” and he didn't have full confidence in the system yet.

“The investigations took place, but they were taken up quite quickly by not the Fed, which is a safety and soundness regulator, but by the authorities that had the most direct responsibility for those issues,” he said.

“The Libor system is structurally flawed, and an international effort is needed to fix the problem.”

The markets opened cautiously this morning, with the FTSE Eurofirst up 0.3 percent. The FTSE All-World also reported a mild gain of 0.2 percent. However, the euro is down by 0.1 percent to $1.2280, as Italian 10-year bonds stick just above six percent.