Bernanke Signals Recession

The Fed chief sees a possible first-half contraction.

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Ben Bernanke can't get a break.

Fresh off brokering an unprecedented deal between JPMorgan Chase and Bear Stearns to prevent the latter's near failure from dragging the financial sector into the gutter, the Federal Reserve chairman jumped right back into the fray with bad news on the economy in testimony before Congress today.

In candid remarks, he told the Joint Economic Committee that a "recession is possible."

"It now appears likely that gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly," he said.

That's the first time Bernanke has put forth the likelihood of a recession and a reminder that even though some of the absolute worst excesses of the credit and mortgage crisis may have passed through the financial sector, pressures on the economy aren't going away.

Bernanke noted that the government's $168 billion stimulus package plus Fed efforts to slash interest rates in response to worsening credit conditions should put the economy back into growth mode in the second half of the year. In the meantime, expect unemployment to rise and housing to remain weak.

Analysts now expect the Federal Reserve to continue cutting interest rates, despite some internal dissent voiced at its last meeting. Global Insight, a researcher, sees another three-quarter-point cut over the next two months, leaving the federal funds target rate at 1.5 percent.

TAGS:
Federal Reserve
recession
Bernanke, Ben
interest rates
  • Kirk Shinkle

    Kirk Shinkle is a senior editor for U.S. News Money and manages the Best Funds portal. Follow him on Twitter @KirkS or email him at kshinkle@usnews.com.