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Bernanke's message clear: Rates will drop

Economists expect a bold move this month.

WASHINGTON - Ben Bernanke ditched the cryptic-speak book that central bankers are often so fond of and was deliberately clear about the Federal Reserve's likely next move on interest rates: They're going down.

Bernanke pledged Thursday to slash interest rates as needed to prevent housing and credit problems from plunging the country into a recession.

The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.

Bernanke showed his hand in terms of interest rates amid mounting concerns that the economy may be in danger.

Many economists now believe the Fed will slice its key interest rate by a bold one-half of a percentage point when the Fed meets Jan. 29-30.

"You didn't need a decoder ring to understand what Bernanke was saying," said Richard Yamarone, economist at Argus Research, who is in the half-point reduction camp.

Wall Street was buoyed by Bernanke's words. The Dow Jones Industrial Average jumped 117.78 points to close at 12,853.09.

"The Federal Reserve is not currently forecasting a recession," Bernanke said, fielding questions after his speech. It is, however, "forecasting slow growth," he said.

To bolster the economy, the Fed lowered its key rate three times last year. Its last cut, on Dec. 11, left the rate at 4.25 percent, a two-year low. Still, Bernanke has been criticized for not acting more aggressively to deal with the economy's problems.

Hiring practically ground to a halt in December, pushing up the jobless rate to 5 percent, a two-year high, the government said in a report last week that rattled Wall Street and Main Street.

A housing slump, weaker home values, harder-to-get credit and high energy prices all "seem likely to weigh on consumer spending as we move into 2008," Bernanke said.

The housing slump - aggravated by harder-to-get credit - has weighed heavily on national economic activity. Foreclosures have soared to record highs and financial companies have racked up multibillion-dollar losses because of bad mortgage investments. The problems are expected to persist.

[Last modified January 11, 2008, 01:19:40]