Fed eyes possible substantive rate cuts

WASHNGTON, D.C., Jan. 10 (UPI) -- Federal Reserve Chairman Ben Bernanke said Thursday "substantive" interest rate cuts may be needed for fragile financial markets and weakening employment.

Bernanke said in a Washington speech the 2008 outlook "has worsened and the downside risks to growth have become more pronounced."

"In light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary," he said. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks."

His speech to the Women in Housing and Finance and Exchequer Club suggested the Fed could consider cutting its short-term rate by a half-percentage point from its current 4.25 percent.

Bernanke said the December employment report, which showed a decline in private-sector jobs, signaled a "consequential risk." If the labor market deteriorates, "the risks to consumer spending would rise."

The Fed chief's speech sent the stock market up sharply but the rally soon faded.