Federal Reserve Chairman Ben Bernanke stopped short of signaling further action to boost growth, but said it was critical for the economy's health to reduce long-term joblessness.
The FTSE 100 and Dow dropped more than one per cent after the comments in a speech which had been widely anticipated as a rallying point for the US economy.
"It is clear the recovery from the crisis has been much less robust than we had hoped," he said in remarks prepared for delivery to an annual Fed retreat.
Bernanke said the Fed will meet for two days in September instead of the planned one to mull its options to provide additional monetary stimulus, among other topics.
The Fed chairman said reducing the record high level of workers who have been unemployed for six months or more would help achieve stronger US economic growth.
"Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well," he said.