Bernanke Signals Rate Cut

Updated from 12:37 p.m. EST

Federal Reserve Chairman Ben Bernanke on Thursday signaled the central bank's intention to cut its key interest rate later this month.

Bernanke, in the afternoon speech to the Women in Housing and Finance and Exchequer Club Joint Luncheon in Washington, D.C., noted that the Fed's rate-setting Open Market Committee had cut the fed funds rate by a full point to 4.25% over three meetings since September.

"The Federal Reserve took these actions to help offset the restraint imposed by the tightening of credit conditions and the weakening of the housing market. However, in light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary," he said. "The committee will, of course, be carefully evaluating incoming information bearing on the economic outlook. Based on that evaluation, and consistent with our dual mandate, we stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks."

Bernanke also said in the speech "the financial situation remains fragile, and many funding markets remain impaired" and conditions "pose a downside risk to the outlook for growth." In a question and answer session after the speech, however, he said the Fed was not forecasting a recession, only weak growth.

Bernanke's Gloom Points to More Easing

The Dow Jones Industrial Average rallied almost 135 points after news of Bernanke's words leaked out ahead of its speech. More recently, the index had given up most of those gains and was up almost 16points to 12,751.

As the stock market has largely tanked so far in 2008, investors are increasingly expecting a 50-basis-point cut to the fed funds rate at the Jan. 29-30 meeting. RealMoney.com contributor Tony Crescenzi, the chief bond market strategist at Miller Tabak, on Wednesday reported the market is priced for 76% odds of a 50-basis-point cut.