Bernanke hints at another rate cut

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 the economy may be in danger.

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

Wall Street was buoyed by Bernanke's words. The Dow Jones jumped 117.78 points to close at 12,853.09.

"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 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 in Washington, cautioned against reading too much into one report. But he said if employment conditions were to continue to deteriorate, that would raise risks to the economy.

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