Ben Bernanke, the Federal Reserve chairman, today forecast that the US, the world's biggest economy, would pull out of its recession later this year.

In testimony submitted to Congress's joint economic committee, Mr Bernanke said: "We continue to expect economic activity to bottom out then to turn up later this year."

But the central bank boss warned that the return to growth was likely to be sluggish, meaning there is likely to be more months of job losses to come.

Since the recession started in December 2007, 5.1 million Americans have lost their jobs. Because employers will remain cautious, even when the economy starts to pick up, the unemployment rate was likely to remain high even after the recession ended, Mr Bernanke added.

Mr Bernanke also said recovery could be derailed by a further shock from the banking sector. He said: "A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall.”

US stock markets pared back from yesterday's gains, with the Dow Jones industrial average falling 16.09 points to 8,410.65, as investors await the results of the Fed's stress tests on the country's 19 biggest banks.

The Wall Street Journal reported that the US Government is likely to instruct about ten of the 19 banks being stress-tested to boost their capital, far less than the 14 that was initially expected. The report named Wells Fargo, Citigroup and Bank of America as being among those who, in total, could need to raise tens of billions of new capital to provide them with a buffer against tough times. Goldman Sachs and JP Morgan, are among those expected to be given the all-clear.

Figures from the Institute of Supply Management (ISM) this morning bore out Mr Bernake's cautious optimism.

The ISM's non-manufacturing index rose from 40.8 in March to 43.7 last month. Any reading below 50 means that the services sector, which represents about 80 per cent of America's economic activity, is still contracting.

But the improvement was better than economists, who has forecast a rise to 42, had expected.

Economists are now waiting on the Labor Department's jobless figures, due out on May 8. At least 600,000 people are expected to have lost their jobs in April.

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