In testimony before the Senate Banking Committee on Wednesday and Thursday, Mr. Bernanke said the economy’s outlook was "unusually uncertain" and that the Fed would be prepared to take additional steps if the economic recovery deteriorates. "We are ready and we will act if the economy does not continue to improve––if we don't see the kind of improvements in the labor market that we are hoping for and expecting," Mr. Bernanke said. At the same time, Mr. Bernanke said that despite a "somewhat weaker outlook," the Fed expects the economy to grow moderately this year.

"If correct, the Fed's moderate economic growth scenario is not enough to significantly reduce the unemployment rate or to create any inflationary pressures over the next year or so," said Vanguard economist Roger Aliaga-Díaz. "Accordingly, the monetary policy outlook seems to be more focused on the potential additional help the economy may need than on the timeline for increasing rates."

New residential construction dropped for the second straight month in June, a reflection of the economy’s weakness. Housing starts fell 5% from May to a seasonally adjusted annual rate of 549,000, a bit below expectations and the lowest level in more than a year. Starts of multifamily units tumbled 21.5% to lead the decline, while those of single-family dwellings were down 0.7%. The market is feeling the effect of April’s expiration of the federal homebuyer tax credit, and all four of the nation’s regions experienced declines. The news wasn’t all bad: permits were up 2.1% and completions increased 26.2% as buyers closed on contracts signed in April.

Sales of existing homes fell 5.1% in June to an annual rate of 5.37 million. The decline was less than forecast, but sales were still at their lowest seasonally adjusted level since March. April’s expiration of the federal homebuyer tax credit is weighing on the market. Sales rose in the Northeast after a steep drop last month, but were down in the nation’s other three regions. Compared with a year ago, however, sales increased in all four regions. Inventories climbed 2.5% in June, and the 8.9-month supply is  the highest level in almost a year. With foreclosures up, the supply is expected to grow. The median existing home price rose 1% in the last year, to $183,700.

The Conference Board’s index of leading indicators, which hints at the future state of the economy, dipped 0.2% in June, slightly better than expectations. The coincident index, a measure of the current economy, was unchanged, although employment was a negative factor for the first time this year. Five of the leading index’s ten leading indicators rose, with interest rate spread and real money supply contributing the most. The largest detractors were average workweek, supplier deliveries, and stock prices. However, the index is still up 2.6% for the year. Economists at the Conference Board noted that the economy is still expanding, but at a slower pace.

"The Conference Board's as well as other leading indices of economic activity, such as our proprietary Vanguard Leading Economic Index, have all worsened over the last month or so, but they are all still up from a few months back," Mr. Aliaga-Díaz said. "Overall, this pattern is consistent with the consensus outlook of subdued and uneven growth during the recovery."

Economists will have an assortment of data to decipher next week. Friday brings reports on gross domestic product (GDP) and the employment cost index. The news begins Monday with new-home sales and continues Tuesday with consumer confidence. The Federal Reserve’s Beige Book release on economic conditions across the United States is scheduled for Wednesday along with data on durable goods.