US FEDERAL RESERVE SIGNALS NEW INTEREST RATE CUT TO PROTECT AGAINST RECESSION

Tom Bawden, New York

Ben Bernanke, the Chairman of the US Federal Reserve, pledged today to tackle the credit crunch that is threatening America’s growth by acting "as needed" to bolster its flagging economy.

In remarks that appeared to reinforce the case for a further interest rate cut, Mr Bernanke said that the central bank "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks".

Mr Bernanke told a Senate Banking Committee hearing: "More-expensive and less-available credit seems likely to continue to be a source of restraint on economic growth.

"The outlook for the economy has worsened in recent months, and the downside risks to growth have increased."

The Fed controls the economy chiefly by determining the key "federal funds" interest rate.

Although he did not go into details, analysts interpreted Mr Bernanke's comments as a further indication that the Fed would cut interest rates again at its next meeting, on March 18.

The Fed imposed an emergency cut of 0.75 percentage points in the cost of borrowing to 3.5 per cent on January 22, then reduced the rate by a further half-point at its scheduled meeting eight days later.

Mr Bernanke added: "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."

"The softer labour market, together with factors including higher energy prices, lower equity prices, and declining home values, seem likely to weigh on consumer spending in the near term."

The Dow Jones industrial average fell 43.80 points to 12,508.40 as Mr Bernanke's comments emerged