4pm BST update
Graeme Wearden
Federal Reserve chairman Ben Bernanke warned today that the US economy may shrink in the first half of this year, in a frank admission that conditions have worsened in the last two months. Bernanke told the joint economic committee of US Congress today that the short-term economic outlook has deteriorated compared with the Fed's predictions at the end of January, and that unemployment is likely to rise.
"It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly," said Bernanke.
Recession is generally defined as two consecutive quarters of negative growth. Although Bernanke did not use the word, his testimony today marked the closest he has come to admitting the US might already be in recession.
Striking a notably cautious tone, the Fed chairman testified that the US economy was "going through a very difficult period".
He predicted that unemployment would probably go up in the next few months, despite having dropped in February.
GDP figures for the first quarter of this year have not yet been released, but many analysts believe activity slowed compared with the final quarter of 2007, when GDP increased by an annualised rate of just 0.6%.
Bernanke was more optimistic about longer-term prospects, predicting that economic activity would strengthen in the second half of 2008. However, he also warned that the ongoing turbulence in the financial markets made it hard to have confidence in such forecasts.
"The risks remain to the downside," cautioned Bernanke, under whose leadership the Fed has cut interest rates aggressively in recent months to try and keep consumers spending.
Bernanke's testimony will be eagerly watched, as there is worldwide concern over the health of the US economy, as a slowdown would have serious knock-on effects globally.
On Wall Street, the Dow Jones industrial average was down 31.02 points in early trading at 12,623.34, as the hearing continued.
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