By JEANNINE AVERSA
WASHINGTON (AP) - Federal Reserve Chairman Ben Bernanke told Congress Thursday that the country's economic outlook has deteriorated and signaled that the central bank is ready to keep on lowering a key interest rate - as needed - to shore things up.
In prepared remarks to the Senate Banking Committee, Bernanke said the one-two punch of the housing and credit crises has greatly strained the economy. Hiring has slowed and people are likely to tighten their belts further, as they are pinched by high energy prices and watch the value of their single biggest asset - their homes - weaken, he warned.
"The outlook for the economy has worsened in recent months, and the downside risks to growth have increased," Bernanke said. "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." Bernanke also said that the "virtual shutdown" of the market for subprime mortgages - given to people with blemished credit histories or low incomes - and a reluctance by skittish lenders to make "jumbo" home loans exceeding $417,000 have aggravated problems in the housing market.
Unsold homes have piled up and foreclosures have climbed to record highs.
"Further cuts in homebuilding and in related activities are likely," Bernanke cautioned.
Given all the dangers facing the economy, the Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," he said, indicating additional rate cuts were likely.
