WASHINGTON — The nation's top two economic policymakers predicted Thursday that the United States would probably dodge a recession, but just barely. The economy itself, meanwhile, threw off conflicting signals about whether it was improving or deteriorating.
Federal Reserve Chairman Ben S. Bernanke told a Senate committee that "the outlook for the economy has worsened in recent months and the downside risks to growth have increased." And he said central bank officials stood ready to cut interest rates further to counteract the effect of the slumping housing market, weak employment and financial institutions that remain deeply reluctant to lend.
Bernanke suggested the bank's efforts ultimately would prove successful.
Appearing at the hearing with Bernanke, Treasury Secretary Henry M. Paulson Jr. declared that the economy was "strong, diverse and resilient," although he said it was undergoing "a significant and necessary housing correction."
The economy will continue growing, he said, but "its pace in the coming quarters will be slower than what we have seen in recent years."
The somber tone from Bernanke and Paulson helped depress the mood on Wall Street, ending a three-day rally in stocks. The Dow Jones industrial average sank 175.26 points, or 1.4%, to 12,376.98.
Markets also were unnerved by more signs that the credit crunch in mortgages was spreading to other corners of the financial system. In recent days anxious investors have balked at buying certain corporate and municipal bonds, driving up interest rates on those securities.
As it has repeatedly since last summer, the economy continued to send up contradictory signals.
On Thursday, the government reported that the nation's trade balance, although still in the red, substantially improved in December and for all of 2007, despite record foreign oil prices.
The U.S. exported $144.3 billion of goods and services in the last month of the year, a $2.2-billion improvement over the month before. It imported $203.1 billion of goods and services in December, $2.2 billion less than in November. For 2007 as a whole, the U.S. ran a trade deficit of $711.6 billion, down nearly $50 billion from 2006, the government said.
The trade report came a day after a report on January retail sales showed unexpected growth.
