Bernanke Offers Bleaker View on U.S. Economy

This should rally the market. Or maybe they used up all those "animal spirits" yesterday?

Ben S. Bernanke, the chairman of the Federal Reserve, presented his bleakest assessment yet of the economy on Wednesday morning, warning a Congressional committee that economic growth was likely to stagnate — and perhaps even contract — over the first half of the year.

In his first public remarks since the Fed orchestrated an unprecedented bailout of thebrokerage firm Bear Stearns, Mr. Bernanke acknowledged that while the Fed’s actions had “helped stabilize” the credit markets, banks and other financial institutions remained hesitant to lend, causing problems for the broader economy.

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“Normally, the market sorts out which companies survive and which fail, and that is as it should be,” Mr. Bernanke said. But he said the consequences of allowing Bear to collapse would have led to “chaotic” consequences for the credit markets and confidence in the economy.

“The damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain,” Mr. Bernanke said.