Fed chief foresees bleak outlook

Washington: Federal Reserve Chairman Ben Bernanke, warning Cong-ress of a period of sluggish business growth, sent a fresh signal yesterday that the central bank will again lower interest rates to steady the teetering US economy.

"The economic situation has become distinctly less favourable" since the summer, the Fed chief told the House Financial Services Committee.

Since Bernanke's last such assessment last summer, the housing slump has worsened, credit problems have intensified and the job market has deteriorated.

Bernanke said that the confluence of these factors has turned people and businesses alike toward a more cautious attitude to spending and investment.

This, he said, has further weakened the economy.

Incoming barometers continue to "suggest sluggish economic activity in the near term", Bernanke told the House Financial Services Committee.

At the same time, he added, the Fed must keep a close eye on inflation given the recent run-up in energy and other prices paid by consumers and businesses.

For now though, the biggest battle is shoring up the economy.

Bernanke pledged anew to slice a key interest rate to help the wobbly economy, which many fear is on the verge of a recession - or possibly has already toppled into one.

The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Bernanke said, hewing closely to assurances he offered earlier this month.

The central bank, which started lowering a key interest rate in September, has recently turned much more aggressive.

Over the span of just eight days in January, it slashed rates by 1.25 percentage points - the biggest one-month reduction in a quarter of a century.