WASHINGTON (AP) - Federal Reserve Chairman Ben Bernanke said Wednesday that the worsening financial crisis could prove a major weight on U.S. business growth and pledges to "act as needed" to brace the wobbly economy.
Bernanke and his Fed associates are fighting the biggest financial debacle since the Great Depression. On Wednesday, the Fed chief faced a second straight day of tough questioning on Capitol Hill about the Bush administration's proposed $700 billion bailout plan.
Lawmakers have voiced skepticism about the plan, which is aimed at shoring up troubled financial institutions and markets.
Bernanke has been trying to reassure the country that the Fed will do what it can to provide relief. Some analysts think interest rates might be lowered again soon.
In testimony prepared for Congress' Joint Economic Committee, Bernanke repeated his warning of dire economic consequences if the bailout isn't enacted and if credit woes persist. Neither businesses nor consumers would be able to borrow money, he said, adding that such a scenario could result in the world's largest economy grinding to a virtual halt.
"The intensification of financial stress in recent weeks, which will make lenders still more cautious about extending credit to households and business, could prove a significant drag on growth," Bernanke said. "The downside risks to the outlook thus remain a significant concern."
All told, the economy is likely to turn in a subpar performance in the second half of this year, Bernanke said. Consumers are expected to rein in their spending as unemployment rises, paychecks shrink and the energizing impact of the government's tax rebates disappears. Slowdowns overseas aren't helping, Bernanke said, noting that they'll cause American export growth to recede.
"Economic activity appears to have decelerated broadly," Bernanke said.
(Copyright 2008 by The Associated Press. All Rights Reserved.)