Bernanke Sees 'Sluggish' Turn

The markets seemed at first to like what they heard, as his words support the chances of another federal funds interest rate cut when the Federal Open Market Committee meets again in December. Indeed, Bernanke's worry counters much of the more hawkish talk from Fed officials earlier this week that seemed designed to stem the markets' expectations for more monetary easing.

The fed funds futures market raised the odds of a December cut to 70% Thursday morning, after reaching just 50% earlier this week. The Dow Jones Industrial Average was briefly at the unchanged mark during his testimony, but it fell to a 70-point drop after the question-and-answer session.

Thursday's market action follows a dramatic 360-point decline in the Dow on Wednesday on expectations for more mortgage-related writedowns at banks and brokerage firms such as Citigroup(C), Morgan Stanley(MS), Goldman Sachs(GS), Merrill Lynch(MER) and others.

But it may be hard for some to trust the Fed's self-defined "hope" that the housing market will recover my mid-2008. Bernanke's comments Thursday are still a total about-face from his inflation focus through most of the year. And they are a far cry from the Fed's statement accompanying the Jan. 31 meeting of the Federal Open Market Committee, which stated that "some tentative signs of stabilization have appeared in the housing market."

When asked specifically about the chances of recession by Sen. Charles Schumer (D, N.Y.), Bernanke said that "economists are notoriously bad at turning points, and I wouldn't put the Fed in a different category."

He added that the Fed sees "moderate but positive growth in the next few quarters ... but by spring of next year, the housing problem, we hope, finds a bottom, that broader economy's reliance will take hold and help the economy recover to a more reasonable growth pace."

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