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Fed boss warns of weaker economy Fed boss warns of weaker economy
(20 minutes later)
Federal Reserve chairman Ben Bernanke has warned that the outlook for the US economy outlook is deteriorating. Federal Reserve chairman Ben Bernanke has warned that the outlook for the US economy is deteriorating.
He said the housing and credit market turmoil had hit the economy and added that a weak labour market could further undermine consumer spending.He said the housing and credit market turmoil had hit the economy and added that a weak labour market could further undermine consumer spending.
Given the risks facing the economy, Mr Bernanke signalled that additional US interest rate cuts were likely.Given the risks facing the economy, Mr Bernanke signalled that additional US interest rate cuts were likely.
The central bank began lowering the cost of borrowing in September and cut rates dramatically in January.The central bank began lowering the cost of borrowing in September and cut rates dramatically in January.
'Timely action''Timely action'
Mr Bernanke did not mention the risk of a recession and said he expected the economy to pick up later this year.Mr Bernanke did not mention the risk of a recession and said he expected the economy to pick up later this year.
I believe our economy will continue to grow, although its pace in coming quarters will be slower than what we have seen in recent years Henry Paulson, US Treasury SecretaryI believe our economy will continue to grow, although its pace in coming quarters will be slower than what we have seen in recent years Henry Paulson, US Treasury Secretary
"The outlook for the economy has worsened in recent months, and the downside risks to growth have increased," Mr Bernanke told the Senate Banking Committee."The outlook for the economy has worsened in recent months, and the downside risks to growth have increased," Mr Bernanke told the Senate Banking Committee.
"To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so.""To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so."
He said the Federal Reserve "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks".He said the Federal Reserve "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks".
The Fed has cut interest rates substantially since September last year to bring its key rate to 3% from 5.25%.The Fed has cut interest rates substantially since September last year to bring its key rate to 3% from 5.25%.
This included an unscheduled emergency rate cut on January 23 of three quarters of a percentage point - its biggest in 25 years.This included an unscheduled emergency rate cut on January 23 of three quarters of a percentage point - its biggest in 25 years.
Rescue planRescue plan
US Treasury Secretary Henry Paulson, also testifying, said he was hopeful that the economy would be able to avoid falling into a recession this year,US Treasury Secretary Henry Paulson, also testifying, said he was hopeful that the economy would be able to avoid falling into a recession this year,
"I believe our economy will continue to grow, although its pace in coming quarters will be slower than what we have seen in recent years," Mr Paulson said."I believe our economy will continue to grow, although its pace in coming quarters will be slower than what we have seen in recent years," Mr Paulson said.
He said the two-year $167bn (£86bn) economic stimulus plan signed into law by President George W Bush on Wednesday should help the faltering jobs market by creating more than half a million jobs by the end of this year.He said the two-year $167bn (£86bn) economic stimulus plan signed into law by President George W Bush on Wednesday should help the faltering jobs market by creating more than half a million jobs by the end of this year.
The plan includes giving tax rebates to 130 million US households.The plan includes giving tax rebates to 130 million US households.
Mr Paulson also said the government was working on plans to help homeowners who are facing problems making mortgage repayments avoid defaulting on their loans.Mr Paulson also said the government was working on plans to help homeowners who are facing problems making mortgage repayments avoid defaulting on their loans.