The U.S. economy seems to be recovering but it is "far from being out of the woods," Federal Reserve Chairman Ben Bernanke said Wednesday.

In prepared remarks to business people in Dallas, Bernanke said that the financial crisis, the worst one since the Great Depression of 1930s, looks to "be mostly behind us."

"The economy seems to have stabilized and is beginning to grow again," he said. "But we are far from being out of the woods."

Many Americans are still grappling with unemployment or foreclosure, or both and cities and states are struggling to maintain essential services, said the Fed chief.

Although much of the financial system is functioning more or less normally, bank lending remains very weak, threatening the ability of small businesses to finance expansion and new hiring, Bernanke added.

In the speech, Bernanke said some of the toughest problems are in the job market.

The unemployment rate has edged off its recent peak, but at 9.7 percent, it is still close to its highest level since the early 1980s.

"Although layoffs have eased in recent months, hiring remains very weak," said Bernanke, adding that more than 40 percent of the unemployed have been out of work six months or longer, nearly double the share of a year ago.

"I am particularly concerned about that statistic, because long spells of unemployment erode skills and lower the longer-term income and employment prospects of these workers," said the Fed chief.

The Federal Reserve announced on March 16 to keep the federal funds rate at historic low level of zero to 0.25 percent for "an extended period" to boost the economic recovery.

It is widely expected that the Fed will keep the rate near zero at its next meeting in late April and for most of this year.

Bernanke explained that the record-low interest rates should help foster the recovery.

"My best guess is that economic growth, supported by the Federal Reserve's stimulative monetary policy, will be sufficient to slowly reduce the unemployment rate over the coming year," he said.

However, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, said in separate remarks Wednesday that the Fed needs to start boosting rates "soon."

"I would view a move to 1 percent as simply a continuation of our strategy to remove measures that were originally implemented in response to the intensification of the financial crisis that erupted in the fall of 2008," said Hoenig in a speech delivered in Sante Fe, New Mexico.

"A federal funds rate of 1 percent would still represent highly accommodative policy," he said. "From this point, further adjustment of the federal funds rate would depend on how economic and financial conditions develop."