WASHINGTON — Federal Reserve Chairman Ben S. Bernanke acknowledged Wednesday that a recession was possible, but he predicted a rebound by year's end, declaring in effect that the central bank had done its job and it now was up to Congress to tackle the still-deepening housing crisis.
Bernanke also signaled that the Fed was unlikely to continue to cut interest rates aggressively. And he made clear that, although housing was "at the center" of the country's economic woes, preventing foreclosures and helping struggling mortgage holders were outside the Fed's area of responsibility.
Bernanke's remarks before the Joint Economic Committee of Congress appeared to lend the weight of his position to congressional leaders who are pushing for quick action to forestall foreclosures, restructure the mortgage market and speed the refinancing of troubled loans.
"I think housing is very important, and we need to address it. But of course that's the Congress' sphere of influence, not the Fed's," he told the panel.
He also urged lawmakers to address longer-term economic needs by developing alternative energy sources and boosting investment in education and worker retraining.
Describing the immediate economic outlook, however, Bernanke used his grimmest language to date.
"It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly," he said. And, after months of avoiding it, he used the word "recession," but only to concede that it was "possible." And he expressed optimism that the clouds would lift by the end of the year.
"Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year," he said, noting that the central bank had lowered its benchmark federal funds rate by 3 percentage points since the crisis began last year, bringing it to 2.25%.
Fed watchers saw that as a signal that Bernanke might preside over another small rate cut before the summer but that the federal funds rate was unlikely to go below 2%.
"An end to policy easing is in sight," said Vincent Reinhart, a former director of the Federal Reserve's division of monetary affairs and a fellow at the American Enterprise Institute.
