The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy.

"We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.

Bernanke showed his hand on the Fed's likely next move amid concerns that the economy may be in danger.

Some economists say they believe the Fed will slice its key interest rate half of one percentage point when the Fed meets Jan. 29 and 30. Others say they think the Fed will go with a more modest reduction of one-quarter of a percentage point, given concerns that high energy prices could spark inflation.

"The Federal Reserve is not currently forecasting a recession," Bernanke said, fielding questions after his speech. It is, however, "forecasting slow growth," he said.

To bolster the economy, the Fed lowered its key rate three times last year. Its last cut, Dec. 11, left the rate at 4.25 percent, a two-year low. Still, Bernanke has come under criticism for not acting more aggressively to deal with the economy's problems.

Worries about the country's economic health have gripped voters, galvanized presidential candidates, and spurred the White House and Congress to explore ways to stimulate the economy to avoid a recession. The White House is considering a tax cut.

Hiring practically ground to a halt in December, pushing the unemployment rate up to 5 percent, a two-year high, the government said in a report last week that rattled Wall Street and Main Street.

Bernanke, in a speech to a housing and economic forum here, cautioned against reading too much into one report. However, he said, if employment conditions were to continue to deteriorate, that would raise risks to the economy. The big worry is that consumers might cut back on their spending, sending the economy into a tailspin.

A housing slump, weaker home values, harder-to-get credit and high energy prices, Bernanke said, all "seem likely to weigh on consumer spending as we move into 2008."