US Economy Slipping into Recession?

Wednesday, April 02, 2008 | | |

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke on Wednesday conceded for the first time the U.S. economy may slip into recession, but said growth should pick up later this year as the impact of interest rate cuts and other emergency steps take root.

Bernanke told a congressional panel that the economy appeared to be growing, but warned it could shrink in the first half of 2008. It was Bernanke's first testimony on Capitol Hill since the U.S. central bank helped rescue investment bank Bear Stearns in mid-March, an action he defended as averting a collapse that would have been calamitous.

"Recession is possible," Bernanke told the Joint Economic Committee. "Our estimates are that we are slightly growing at the moment, but we think that there's a chance that for the first half as a whole, there might be a slight contraction."

The Fed has lowered benchmark interest rates by three percentage points to 2.25 percent since mid-September to help put a floor under an economy hit hard by a housing slump and credit market turmoil.

Bernanke said those rate cuts and other emergency measures to thaw frozen credit markets should promote growth over time -- remarks traders in financial markets saw as a signal that the Fed's sharp rate-cutting action may be drawing to an end.

Some analysts said the absence of a specific pledge by Bernanke to act as needed to help the economy, a standard feature of recent Fed statements, buttressed that view. "There is a conspicuous absence of policy commitment in this statement," said Jan Hatzius, chief economist at Goldman Sachs.

U.S. stock prices slipped, with the blue chip Dow Jones industrial average closing down 48.53 points at 12,605.83. Prices for U.S. government bonds also fell, as did the value of the dollar.