Against that backdrop, the government is trying to prop up the housing and job markets. Federal Reserve Chairman Ben Bernanke reiterated the need to continue record-low interest rates for "an extended period." And the Senate passed a bill to give tax breaks to companies that hire the jobless.
Bernanke told Congress that low rates will help ensure that the recovery will last and help ease the sting of high unemployment. Asked what else Congress could do to stimulate job creation, he hesitated to say.
"I'm sure you know the menu of things that you could do which could create jobs," he said. "Unfortunately there's no -- there's no silver bullet here."
Investors seemed buoyed by Bernanke's commitment to low rates, despite the news on home sales and Freddie Mac. The Dow Jones industrial average gained about 91 points, roughly 0.9 percent.
Yet economists cautioned that the government's ability to help is limited. "Our view is that it will be a long, tough slog for U.S. consumers in particular and for the economy overall," said Sal Guatieri, the senior economist at BMO Capital Markets.
Bernanke, in his twice-a-year report to the House Financial Services Committee, said the rebound would endure. He also sought to restrain hopes. He said the Fed sees moderate growth that will cause only a slow decline in the nearly double-digit jobless rate.
He offered no new clues about when the Fed would eventually raise interest rates.
Bernanke faces more pressure from lawmakers in an election year. Their constituents are struggling, while bailed-out Wall Street banks are profitable again. Unemployment is at 9.7 percent, home foreclosures are at record highs and credit is still tight.
Underscoring the fragility of the housing market, the government said new-home sales dropped 11 percent last month, to a seasonally adjusted annual pace of 309,000 units. That's the lowest level in the nearly 50 years records have been kept.
Winter storms were partly to blame. But sales have dropped for three straight months despite vast government support. Economists had already been worrying about how the housing market would respond once government aid programs are withdrawn.
One such program has lowered mortgage rates and bolstered the housing market but is slated to end March 31. Under the program, the Fed has committed $1.25 trillion to buying mortgage securities and debt from Freddie Mac and its sister mortgage finance firm Fannie Mae.
Bernanke said that program's end would have only a "modest effect" on raising mortgage rates. He left the door open to extending the program if the housing market or the economy worsened.
Freddie Mac's earnings report was grim news for taxpayers, who have had to rescue the company and Fannie Mae. The company lost nearly $26 billion last year and nearly $80 billion since 2007. A record proportion of its borrowers -- 4 percent -- face foreclosure. Its chief executive warned of many more foreclosures to come.
Freddie Mac said it will likely need more federal aid beyond the $51 billion it has received, and might not be able to repay it.
Fannie and Freddie are vital players in the industry. They buy loans from lenders and sell them to investors. Combined, they own or guarantee about half of all residential mortgages. Had they gone broke in 2008, millions of people would have been unable to get mortgages. Freddie and Fannie have already soaked up $111 billion from the government, which seized control of them in September 2008. That number is expected to hit $188 billion by the fall of 2011.
The Obama administration had been expected to announce plans to overhaul Freddie Mac and Fannie Mae this month when it submitted its 2011 budget request. But Treasury Secretary Timothy Geithner said Wednesday that won't happen until next year.