Federal Reserve Chairman Ben Bernanke suggested that the central bank could lower interest rates further if the economy, already weak from the credit crunch, declining employment and falling housing prices, continues to deteriorate.
And while Mr. Bernanke said his outlook included an undefined period of sluggish economic growth followed by a pickup later this year, the risk remains to the downside.
Although the baseline outlook envisions an improving picture, it is important to recognize that downside risks to growth remain, Mr. Bernanke said in prepared testimony to the Senate Banking Committee, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated, or that credit conditions may tighten substantially further.
Since September, the Fed has cut its target for the federal funds rate by a total of 225 basis points, to 3%, including 125 basis points in January.
Read the full text of Mr. Bernankes testimony here.