Chairman Bernanke says Fed ready to cut interest rates again as needed

WASHINGTON — Federal Reserve Chairman Ben Bernanke pledged Thursday to slash interest rates as needed to prevent housing and credit problems from plunging the country into a recession.

The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.

Bernanke showed his hand in terms of the Fed's likely next move amid mounting concerns that the economy may be in danger.

Some economists believe the Fed will slice its key interest rate by a bold half percentage point when the Fed meets next on Jan. 29 and 30. Others, however, think the Fed will go with a more modest one-quarter percentage point reduction, given concerns that high energy prices could spark inflation.

Wall Street took comfort in Bernanke's words. The Dow Jones, which had been down in early trading, jumped more than 100 points as Bernanke spoke. The Dow was up around 20 points in afternoon trading.

"The Federal Reserve is not currently forecasting a recession," Bernanke said, fielding questions after his speech. It is, however, "forecasting slow growth," he said.

To bolster the economy, the Fed lowered its key rate three times last year. Its last cut, on Dec. 11, left the rate at 4.25 percent, a two-year low. Still, Bernanke has come under criticism for not acting more aggressively to deal with the economy's problems.

Worries about the country's economic health have gripped voters, galvanized presidential candidates and spurred the White House and Congress to explore ways to stimulate the economy to avoid a recession. The White House is considering a tax cut.

Hiring practically ground to a halt in December, pushing the unemployment rate up to 5 percent, a two-year high, the government said in a report last week that rattled Wall Street and Main Street.

Bernanke, in a speech to a housing and economic forum here, cautioned against reading too much into one report. However, he said that if employment conditions were to continue to deteriorate, that would raise risks to the economy. The big worry is that consumers might cut back on their spending, sending the economy into a tailspin.

Incoming information suggests that the outlook for economic activity for this year has worsened and that the "downside risks to growth have become more pronounced," Bernanke warned.