Federal Reserve Chairman Ben Bernanke said Friday housing remains a significant drag on the economy, and the Fed – while dedicated to helping the economy – can only do so much without Congress stepping up to the plate and implementing the right tax and fiscal policies. Bernanke made those statements from Jackson Hole, Wyo., while attending the Fed’s annual meeting. Notably missing from the speech was any mention of the possibility of another round of quantitative easing – or QE3. Instead, the Fed Chair suggests policymakers should do more to stimulate job growth while adopting efficient fiscal policies. “Notably, the housing sector has been a significant driver of recovery from most recessions in the United States since World War II, but this time–with an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines–the rate of new home construction has remained at less than one-third of its pre-crisis level,” Bernanke said. Bernanke said the chain effect has been detrimental to the overall economy since low home construction levels result in sagging balance sheets “not only for builders but for providers of a wide range of goods and services related to housing and homebuilding.” The Fed Chair said housing activity also is feeling the weight of tighter credit conditions for borrowers, resulting in adverse effects across the financial markets. As more homeowners end up underwater – or owning more on their homes than their worth – financial hardship is spreading further, impacting other areas of personal consumption, Bernanke said. “Financial pressures on financial institutions and households have contributed, in turn, to greater caution in the extension of credit and to slower growth in consumer spending,” Bernanke said. The Fed Chair suggested several times in his speech that it’s time for Congress to enact a disciplined fiscal plan to deal with taxes, skyrocketing expenses and future health care costs for an aging population. He also advised Congress to balance these needs against weak economic fundamentals. “Notwithstanding the severe difficulties we currently face, I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if–and I stress if–our country takes the necessary steps to secure that outcome,” Bernanke said. “Over the medium term, housing activity will stabilize and begin to grow again, if for no other reason than that ongoing population growth and household formation will ultimately demand it. Good, proactive housing policies could help speed that process.” Still, the Fed Chair sounded the alarm for Congress, saying the nation still lacks a sustainable, long-term fiscal plan. “The quality of economic policymaking in the United States will heavily influence the nation’s longer-term prospects,” the Fed chair said. “To allow the economy to grow at its full potential, policymakers must work to promote macroeconomic and financial stability; adopt effective tax, trade, and regulatory policies; foster the development of a skilled workforce; encourage productive investment, both private and public; and provide appropriate support for research and development and for the adoption of new technologies.” The Dow Jones dropped 123 points soon after the Fed chair released his statements from Jackson Hole. It has since rebounded more than 40 points. Write to: Kerri Panchuk.