Federal Reserve Chairman Ben Bernanke is predicting that the economy will make a modest recovery next year, but it will not be without growing pains in the process.

“We have come a long way from the darkest period of the crisis, but we have some distance yet to go,” Bernanke said in a speech before the Economic Club of Washington today. He also commented, “the economy confronts some formidable headwinds that seem likely to keep the pace of expansion moderate.”

Those headwinds are likely to come in the form of limited credit availability, a weak job market and reduced consumer spending, according to the Fed chief.

Yet he remained cautiously optimistic that the recession was behind us and cited the effects of government stimulus on the economy. Car sales increased with the Cash for Clunkers program, home sales spiked with the aid of the $8,000 first-time homebuyers tax credit, and college students are getting more loans.

Bernanke was asked after his speech whether the economy might dip back into recession after all the government stimulus programs run out.  He told the audience he could not rule out that possibility, but he was hopeful it would not occur.

The good news for the mortgage market for now is that the Fed will continue to hold its key interest rate at a rock-bottom low until inflation starts to pick up. Low rates can contribute to greater mortgage credit and lower home loan interest rates.  The Fed meets again Dec. 15-16 to decide the direction of its interest rate, and the market is virtually unanimous in forecasting that it will be unchanged at its current range of zero to 0.25 percent.