Bernanke say economy could shrink

WASHINGTON, April 2 (UPI) -- U.S. Federal Reserve Chairman Ben Bernanke said Wednesday he expected the gross domestic product to stall and possibly shrink this year.

"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," Bernanke said in testimony before the Senate Banking Committee.

The statement hovers close to an admittance that a recession is possible.

"Concerns about employment and income prospects, together with declining home values and tighter credit conditions, have caused consumer spending to decelerate considerably," Bernanke said.

The chairman said inflation would "moderate" in the next quarters. He also told financial leaders the Fed's recent actions in restoring liquidity to financial markets "appear to have helped stabilize the situation somewhat."

Bernanke made no mention of future reductions in key bank lending rates, which the Fed reduced to 2 1/4 percent in March.

He said the rescue of the "near-failure" of investment bank Bear Stearns was necessary to avoid a "chaotic unwinding," of financial markets.

The demise of the large investment bank "raised difficult questions of public policy," Bernanke said "However, the issues raised here extended well beyond the fate of one company."