Washington, D.C. (Rightcommentary.com) - Today appearing before the Congress, Federal Reserve Chairman Ben Bernanke conceded for the first time the U.S. economy may slip into recession, but said growth should pick up later this year as interest rate cuts and other emergency steps take root.

Bernanke said in his testimony that the economy appeared to be growing, but warned it could shrink in the first half of 2008. “Recession is possible,” Bernanke told the Joint Economic Committee. “Our estimates are that we are slightly growing at the moment, but we think that there’s a chance that for the first half as a whole, there might be a slight contraction.”

The Fed has lowered benchmark interest rates by three percentage points to 2.25 percent since mid-September to help put a floor under an economy hit hard by a housing slump and credit market turmoil. Bernanke said those rate cuts and other emergency measures to thaw frozen credit markets should promote growth over time — remarks traders in financial markets saw as a signal that the Fed’s sharp rate-cutting action may be drawing to an end.

What bothers me about all of this is that it was so predictable back in June of last year, yet Bernanke refused to do anything, citing that reducing rates and improving lending accessibility was not how you solved credit crises. Let’s use the “wayback” machine for a second and take a look at what Mr. Bernanke told the committee back in July of last year:

The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards and the recent increase in mortgage interest rates. Sales should ultimately be supported by growth in income and employment as well as by mortgage rates that–despite the recent increase–remain fairly low relative to historical norms. However, even if demand stabilizes as we expect, the pace of construction will probably fall somewhat further as builders work down stocks of unsold new homes. Thus, declines in residential construction will likely continue to weigh on economic growth over coming quarters, although the magnitude of the drag on growth should diminish over time.

As Home might say, “DOH!” As someone who was attempting to refinance during this time - I had a different impression of the housing market…. BAD! A view that Mr. Bernanke shares now.

While we’re strolling down memory lane - let’s take a look at this gem:

For the most part, financial markets have remained supportive of economic growth. However, conditions in the subprime mortgage sector have deteriorated significantly, reflecting mounting delinquency rates on adjustable-rate loans. In recent weeks, we have also seen increased concerns among investors about credit risk on some other types of financial instruments. Credit spreads on lower-quality corporate debt have widened somewhat, and terms for some leveraged business loans have tightened. Even after their recent rise, however, credit spreads remain near the low end of their historical ranges, and financing activity in the bond and business loan markets has remained fairly brisk.

Translation - since the credit spreads remain low, we’re not going to do a thing to ease the pending credit crisis.

And then, we have the coup-de-grace of gems:

Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend.

Again, Homer me think economy is “DOH!”

I’d also remind everyone that Uncle Ben wasn’t too hip on the idea of helping the financial industry recover as he is now - again, Mr. Peabody - the wayback machine:

Promoting access to credit and to homeownership are important objectives, and responsible subprime mortgage lending can help advance both goals. In designing regulations, policymakers should seek to preserve those benefits. That said, the recent rapid expansion of the subprime market was clearly accompanied by deterioration in underwriting standards and, in some cases, by abusive lending practices and outright fraud. In addition, some households took on mortgage obligations they could not meet, perhaps in some cases because they did not fully understand the terms. Financial losses have subsequently induced lenders to tighten their underwriting standards. Nevertheless, rising delinquencies and foreclosures are creating personal, economic, and social distress for many homeowners and communities–problems that likely will get worse before they get better.

The Federal Reserve is responding to these difficulties at both the national and the local levels. In coordination with the other federal supervisory agencies, we are encouraging the financial industry to work with borrowers to arrange prudent loan modifications to avoid unnecessary foreclosures. Federal Reserve Banks around the country are cooperating with community and industry groups that work directly with borrowers having trouble meeting their mortgage obligations. We continue to work with organizations that provide counseling about mortgage products to current and potential homeowners. We are also meeting with market participants–including lenders, investors, servicers, and community groups–to discuss their concerns and to gain information about market developments.

Guess what Ben - most people didn’t need you to tell them they’re upside-down on their house… and by now… a good portion of them mailed their keys back to their lenders.

Well - better late than never I suppose…

For those really interested in the whole testimony before the Joint Committee… click here.