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Federal Reserve Chairman Ben Bernanke testifies Tuesday on Capitol Hill in Washington. He gave his most optimistic assessment since the recession started.

WASHINGTON — Federal Reserve Chairman Ben Bernanke told Congress on Tuesday the economy should start growing again later this year, his most optimistic assessment of the country's financial health since the recession struck with force last year.

But Bernanke warned that even after a recovery gets under way, economic activity is likely to be subpar. That means businesses will stay cautious about hiring, driving up the nation's unemployment rate and causing "further sizable job losses" in the coming months, he told the Joint Economic Committee.

The recession, which started in December 2007, already has snatched a net total of 5.1 million jobs. The unemployment rate "could remain high for a time, even after economic growth resumes," Bernanke said.

But while some economists believe unemployment could hit 10 percent by the end of this year, the Fed doesn't share that view. The unemployment rate will probably climb "somewhere" in the 9 percent range, Bernanke said.

"The loss of jobs is one of the most distressing aspects of this whole episode," he said.

Even with all the cautionary notes, the Fed chief offered a far less dour assessment of the economy.

"We continue to expect economic activity to bottom out, then to turn up later this year," he told lawmakers. "We expect that the recovery will only gradually gain momentum."

Recent data suggest the recession may be loosening its grip on the country, Bernanke said.

"The pace of contraction may be slowing," he said. It was similar to an observation the Fed made last week in deciding not to take any additional steps to shore up the economy.

The housing market, which has been in a slump for three years, has shown some signs of bottoming, he said. Consumer spending, which collapsed in the second half of last year, came back to life in the first quarter.

In the months ahead, consumer spending should be lifted by tax cuts contained in President Obama's larger $787 billion stimulus package. Still, rising unemployment, sinking home values and cracked nest eggs will still weigh on consumers willingness to spend freely, Bernanke said.

Bernanke took some heat for the Fed's decision not to hasten the implementation of new rules to protect Americans from abusive credit card practices, as some lawmakers had requested. The Fed's rules take effect in July 2010.

Rep. Elijah Cummings, D-Md., said many Americans burned by the recession have watched banks and other companies get bailed out and feel like: "Hey, we're on fire, too. What about us?"

Sen. Charles Schumer, D-N.Y., called the Fed's decision "unconscionable."

But in the latest sign the downturn could be easing, activity in the services sector contracted at a slower pace in April, the Institute for Supply Management reported Tuesday. Its service sector index came in at 43.7 in April, up from 40.8 in March. Any reading below 50 indicates the service sector, where most Americans work, is contracting.

Meanwhile, business investment remains "extremely weak," and conditions in the commercial real estate market are "poor," the Fed chief said.

Still, Bernanke said he was hopeful that factory production would pick up later this year to replenish stockpiles of goods that have been slashed. And there's been tentative signs that the declines in other countries' economic activity may be moderating, which could help sales of U.S. exports. They have been falling sharply, a key factor behind the drag on U.S. manufacturing, he said.

Private analysts are predicting the economy won't shrink nearly as much as it had been – anywhere from a pace of 1 to 3 percent – in the current quarter. As Obama's economic stimulus package of tax cuts and increased government spending takes hold, analysts think the economy could start growing again in the third or fourth quarter of this year.

The economy's rate of decline topped 6 percent...