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'U.S. SINKS DEEPER...

Half-point cut? Testifying before the Senate banking committee, U.S. Fed chairman Ben Bernanke rejected the notion that a recession is imminent. But, he said, the Fed will act in a 'timely manner' in an effort to quell the downturn that's well under way.

Sluggish growth, more interest rate relief, but no recession.

That's the latest status update on the slumping U.S. economy from Federal Reserve Board chief Ben Bernanke as he testified yesterday before the Senate banking committee.

With the economy still deteriorating, he vowed that the central bank would act in a "timely manner" as an insurance policy against an even steeper downturn.

"My baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt," Mr. Bernanke told the committee.

Mr. Bernanke also painted a grim picture of the housing market, which he said is continuing to worsen due to tighter lending standards.

There has been a "virtual shutdown" of the subprime loan market - geared at borrowers with poor credit histories - as well as much tighter credit conditions across a broad swath of the lending industry.

All that, he said, is depressing home values, pushing up the inventory of unsold homes and weighing on consumers.

Mr. Bernanke has been reluctant to acknowledge the possibility that the U.S. may be headed for recession, even though many Wall Street economists say the country is already in one. But he conceded the Fed's next quarterly forecast, due out shortly, would show "lower projections of growth" that are "reasonably consistent" with private sector numbers.

U.S. Treasury Secretary Henry Paulson, testifying alongside Mr. Bernanke, also rejected the possibility of a recession, which is typically marked by at least two quarters of shrinking economic activity.

"Growth looks to be weak, but still positive," Mr. Paulson said.

Mr. Bernanke and Mr. Paulson faced a few subtle jabs about not anticipating the economic downturn. But on the whole, the hearing was remarkably civil given the growing angst about the economy among consumers, investors and businesses.

Credit problems that began in the housing sector have spread to other areas of lending, forcing up interest costs for many businesses and even local governments. Meanwhile, the first signs of trouble have emerged in the job market, where employment fell in January for the first time in nearly five years. What's more, high energy costs and falling stock prices are weighing on consumer confidence.

Economists interpreted Mr. Bernanke's comments as a pledge to cut the central bank's benchmark interest rate next month.

Economist Ryan Sweet of Moody's Economy.com said he expects another half-a-percentage-point cut in the Fed's benchmark rate when it meets again on March 18.

"The Bernanke-led Fed has put gradualism to bed," Mr. Sweet said.

The Fed has already lowered the federal funds rate by 2.5 percentage points since last summer - 1.25 points in January alone. The rate currently stands at 3 per cent - the lowest rate since mid-2005.'

Lees verder: http://www.theglobeandmail.com/servlet/story/LAC.20080215.IBUSECONOMY15/TPSt