“The outlook for real activity in 2008 has worsened,” Bernanke said after describing all the forces dragging down the economy. “We stand ready to take substantive additional actions as needed to support growth and to provide adequate insurance against downside risks.”

With fears rising that the economy is sliding into recession, Bernanke’s blunt assessment is expected to encourage politicians to call on Congress to take steps that would stimulate growth beyond what the Fed can achieve through lower interest rates.

Many analysts now expect the Fed to continue cutting, to 3 per cent or even lower by summer, to prevent — or at least mitigate — a recession. The goal would be to get people to borrow and spend more.

Consumer spending, however, may already have hit a wall. The nation’s biggest retailers announced that holiday sales gains were the weakest in the last five years, only Wal-Mart gained ground, after it slashed prices to draw jittery consumers.

“Bernanke should have made this commitment to cut rates aggressively two or three months ago,” said Mark Zandi, chief economist at Moody’sEconomy. com “Will it be enough? It will be close.”

The stock market responded with uncertainty at first to Bernanke’s remarks, but then chalked up solid gains. The Dow Jones industrial average surged as he spoke then fell back, then rose again, closing up nearly 1 percent, to 12,853.09.

The mounting evidence has suggested to a growing number of economists and politicians that the Fed by itself cannot stem the economic slide and that Congress must help with fiscal policy in the form of a tax rebate for low-income families, extended unemployment insurance or some other subsidy.

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