Bernanke told the panel the Fed would "act in a timely manner" to prompt economic growth, a statement analysts interpreted as signaling further interest rates reductions.

Bernanke told the panel to expect a "lag" in economic growth following January's rate reductions and improvements in the economy would occur in the second half of the year.

"My baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year," Bernanke said.

The Fed has acted "aggressively," by cutting the target for the federal funds rate by 225 basis points since September, he said, including the largest ever one-month cut of 125 basis points in January.

But, "monetary policy works with a lag," he said, and many sectors have "softened."

Bernanke noted the loss of 17,000 jobs in January and "a virtual shutdown of the subprime mortgage market and a widening of spreads on jumbo mortgage loans." With houses left unsold and inflation pushed by, "the steep run-up in the price of oil," the chairman said, "downside risks to growth remain."