Bernanke Nods at Possibility of a Recession

By STEVEN R. WEISMAN
The New York Times

WASHINGTON — In his bleakest economic assessment to date, the Federal Reserve chairman, Ben S. Bernanke, said Wednesday that the American economy could contract in the first half of 2008, meeting the technical definition of a recession, and he encouraged Congress to help homeowners caught up in the mortgage crisis.

While not endorsing any specific housing proposals, Mr. Bernanke made clear that the weakness in housing remained the single biggest drag on the prospects for an economic recovery and said that it was up to Congress to act.

In fact, Senate Democrats and Republicans reached a general agreement Wednesday afternoon on legislation to help Americans in danger of losing their homes, underscoring the political urgency that lawmakers have faced since last month, when the Fed intervened to coordinate the sale of the brokerage firm Bear Stearns to JPMorgan Chase.

In separate comments, Mr. Bernanke went further than he had in the past, suggesting that the Fed would remain aggressive and vigilant to prevent a repetition of a collapse like that of Bear Stearns, though he said he saw no such problems on the horizon.

Even without additional authority from Congress, Mr. Bernanke said the Fed had already established “on-site” teams of monitors for investment banks to make sure that they adhered to sound practices, and he urged Congress not to dilute the Fed’s authority on such matters.
By the end of his comments, it was also clear that he and the Fed were not entirely pleased with the “blueprint” for regulatory changes issued on Monday by the Treasury secretary, Henry M. Paulson Jr.

That proposal called for an overhaul and consolidation of the financial regulatory system. The Fed chief, in an almost classic case of damning with faint praise, said Mr. Paulson’s blueprint was “a very interesting and useful first step” for Congress to consider ... Read the Entire Article