Fed Chairman Ben Bernanke along with SEC Chairman Christopher Cox and Treasury Secretary Henry Paulson testified before the Senate Banking Committee on the state of the U.S. economy and financial markets. In his prepared remarks, he focused on the credit crisis in the financial markets, the deteriorating financial conditions of many of the major banks, the housing downturn and the increase in unemployment.

Chairman Bernanke acknowledged the opportunity that the economy could slip into a recession but did not say it would do so. He emphasized the moves that the Fed has made to address these problems: the use of the new term auction facility (TAF) and the reduction of the Federal Funds Rate target by 225 basis points from 5 ¼% to 3% since September.

One of the most critical aspects of the testimony is the secondary focus on inflation. Chairman Bernanke did not even mention inflation until nearly halfway through his testimony. When he did, he clearly relegated

He emphasized that his primary focus is on the weak economy. In essence, the Chairman said that he gets it and understands the gravity of the situation. He mentioned the FOMC “will act in a timely manner as needed to support growth and to supply adequate insurance against downside risks.”

This is fairly a change from his prior statements and further indicates his willingness to take aggressive action to cushion the profitable downturn as demonstrated by his two most recent rate cuts. All eyes will be on the next FOMC rate decision for additional confirmation of the Fed’s aggressive loosening of monetary policy.

Doug Roberts is the Founder and Chief Investment Strategist for FollowtheFed.com. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.

Original post by Douglas S. Roberts

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