The nation's fledgling economic recovery continues even as the effects of expansionary fiscal policies compete against stubbornly high unemployment and a heavy supply of foreclosed homes dragging down housing values, Federal Reserve Chairman Ben Bernanke said. Bernanke told the National Press Club Thursday that households increased spending by 4% in the fourth quarter and businesses upped capital spending on new equipment and software, sending a dose of optimism into the economy. Still, the Fed chairman said stresses from falling home prices, an aging work force, Social Security expenses and a federal deficit valued at 9% of GDP continue to strain the nation's economy three years after the U.S. first entered into a recession. While Bernanke unleashed a more optimistic economic forecast for 2011 as the private sector begins to hire and invest, Paul Ashworth, a chief U.S. economist with Toronto-based Capital Economics, said the Fed's reliance on lower long-term interest rates is still infusing a sense of uncertainty into the national economy. "The problem is that the model is estimated using data from the past 30 years," Ashworth wrote in a note Thursday. "The impact of lower long-term interest rates on the economy post credit crunch is likely to be a lot smaller than it was during the credit boom years of 1980 to 2007. With 50% of mortgage borrowers unable to refinance at lower rates because they don't have sufficient home equity, and firms already sitting on stockpiled cash, we doubt that modestly lower rates have much impact on output and employment at all." Bernanke said even with 2010 bringing job growth in the private sector, the weight of 8.5 million jobs lost in 2008 and 2009 remains an albatross around the neck of the U.S. economy with the labor pool filled with recent college graduates. "Recent data do provide some grounds for optimism on the employment front; for example, initial claims for unemployment insurance have generally been trending down, and indicators of job openings and firms' hiring plans have improved," Bernanke said. "Even so, with output growth likely to be moderate for awhile and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level." He said the central bank will continue to rely on alternative measures to stimulate the economy with unemployment stubbornly high and the target range for the funds rate at the near-zero level for two years. "In particular, over the past two years the Federal Reserve has further eased monetary conditions by purchasing longer-term securities on the open market," Bernanke said. "From December 2008 through March 2010, we purchased about $1.7 trillion in longer-term Treasury, agency and agency mortgage-backed securities. In August 2010, we began reinvesting the proceeds from all securities that matured or were redeemed in longer-term Treasury securities, so as to keep the size of our securities holdings roughly constant." In November, the Fed started an additional $600 billion bond buying program, in what has become known as QE2. Write to Kerri Panchuk.