Federal Reserve Chair Ben Bernanke told a Washington D.C. business group Thursday that more interest rate cuts are in the offing to ward off a further weakening of the economy.

“On the whole, despite improvements in some areas, the financial situation remains fragile, and many funding markets remain impaired,” Bernanke said. “We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.”

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. Some, however, think the Fed will go with a more modest one-quarter point reduction, given concerns that high energy prices could spark inflation.

The Federal Open Market Committee (FOMC), the policy-making arm of the Fed, will be paying close attention to whether the weak housing market spills over to other sectors of the economy. However, so far, Bernanke said, the recession remains just a forecast.

Via: Dow Jones Business News (01/10/08)