Ben Bernanke, chairman of the US Federal Reserve, yesterday signalled a willingness to continue pursuing interest rate cuts to tackle the US economic slowdown, although he envisaged an "improving picture" over the course of the year.

Mr Bernanke told the Senate banking committee that the US central bank would "act in a timely manner as needed to support growth and to provide adequate insurance against downside risk".

The hearing marked Mr Bernanke's first significant public appearance since the Federal Reserve cut interest rates by 125 basis points over the space of eight days in January - the most abrupt easing of monetary policy since the early 1980s. Since then, new economic data on employment and business sentiment in the services sector, as well as heightened worries about the housing industry, have increased fears that the US economy might slide into recession this year.

Mr Bernanke yesterday said the "baseline outlook" for the US economy remained one of "sluggish growth" followed by an improvement later in the year as the impact of interest rate cuts and the $170 billion (€116 billion) fiscal stimulus package signed on Wednesday by president George W Bush was felt. But the chairman warned that conditions had worsened and risks to economic growth were significant.

Alan Ruskin, economist at RBS Global Banking and Markets, in Connecticut, said: "[ Mr Bernanke] showed no desire to sugar-coat the near-term economic outlook . . . I would still see this as a Fed that is still inclined to err actively on the side of aggressive pre-emptive action."

The Federal Reserve's open market committee, which sets monetary policy, is next scheduled to meet on March 18th, and many economists believe it could cut interest rates by a further 50 basis points, bringing them to 2.5 per cent.

Mr Bernanke, who was testifying alongside Hank Paulson, US Treasury secretary, and Christopher Cox, chairman of the Securities and Exchange Commission, appeared confident that inflation would remain in check.

Mr Paulson defended the Bush administration's efforts to promote loan modification programmes to prevent foreclosures, saying both the Treasury and the Fed had been "proactive" in responding to the mortgage crisis.