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Today Ben Bernake, the Federal Reserve Chairman, warned Congress that the economy may shrink over the first half of this year, which would signal the start of a recession. Yet, he didn’t offer assurances of further interest rate cuts.

In prepared testimony to Congress’ Joint Economic Committee, Bernanke didn’t use the word recession. But it’s the closest he has come to date to suggesting that possibility, given a trio of crises — housing, credit and financial — that has pummeled the country.

“It now appears likely that gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly,” Bernanke told lawmakers. GDP measures the value of all goods and services produced within the United States and is the best barometer of the United States’s economic health. Under one rule, six straight months of declining GDP, would constitute a recession.

Until now, Ben Bernake stayed reserved about recession and this is the first time he adumbrated the possibility of recession. A few weeks ago, Alan Greenspan warned, that the US economy is going to recession.

I think that the situation is crucial. The fluctuations of S&P 500, DJIA etc, are enormous. This is a very bad indicator of health of the US economy. Also the lowering of interest rates may lead into another problem, which is the trap of liquidity.