With storm clouds hovering over the nation's banks and mortgage buyers, meaningful words of economic optimism at this time would be most welcome.

Nothing doing.

Ben Bernanke, the chairman of the Federal Reserve, delivered a bleak outlook for the economy, saying that risks to both growth and inflation have increased.

The central banker stated that the focus for the Fed would be inflation, saying that "upside risks to the inflation outlook have intensified lately."

"In light of the increase in upside-inflation risk, we must be particularly alert to any indications, such as an erosion of longer-term inflation expectations, that the inflationary impulses from commodity prices are becoming embedded in the domestic wage- and price-setting process."

Those comments underscored that the Fed's next move on interest rates will be an increase.

Stocks, already weak amid growing worries about the health of banks and other financial institutions, fell further after Bernanke's comments, discouraged both by his emphasis on inflation and by his downbeat outlook.

But a rate increase is almost certainly not in the cards until next year, as the Fed focuses on steadying the financial system in the wake of the rescues of Bear Stearns and Fannie Mae and Freddie Mac.

"As events in recent weeks have demonstrated, many financial markets and institutions remain under considerable stress, in part because the outlook for the economy, and thus for credit quality, remains uncertain," Bernanke said in his semiannual economic report to Congress.

He added that "helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve."

Bernanke indicated that weak growth will persist for some time.

"Growth is projected to pick up gradually over the next two years as residential construction bottoms out and begins a slow recovery and as credit conditions gradually improve. However, [Federal Open Market Committee] participants indicated that considerable uncertainty surrounded their outlook for economic growth and viewed the risks to their forecasts as skewed to the downside."