Aug. 31 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, in his first public remarks in six weeks, said the central bank will do what's needed to prevent this month's credit market rout from undoing the six-year expansion.

The Fed ``continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets,'' he said at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming. ``Further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected.''

Bernanke's comments are his first since losses in the subprime mortgage market that pushed up the cost of credit for consumers and companies. The Fed was forced two weeks ago to cut the interest rate on direct loans to banks and shift its policy focus to growth, rather than inflation. The Fed chief suggested the Fed is prepared to cut the discount rate further or use additional tools to ease market strains.

``The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets,'' Bernanke said. He also made clear he won't rescue investors from bad decisions.

Tumultuous Period

The speech comes amid the most tumultuous period of Bernanke's 19-month tenure, after a sudden increase in corporate borrowing costs resulting from the contamination of asset-backed securities linked to subprime mortgages, which are loans to borrowers with low credit scores or limited histories.

Bernanke's remarks discussed the risks of a deeper housing recession arising from tighter lending conditions, and stable prices were mentioned as a long-term Fed goal. When he last spoke, before Congress on July 18, he said inflation was the biggest concern of policy makers.

The last time a chairman confronted immediate issues at Jackson Hole was in 2002 when Alan Greenspan defended his strategy of mopping up burst asset-price bubbles with low interest rates. The Fed had cut the benchmark rate to 1.75 percent at the time, and pared it to 1 percent by June 2003.

Today's speech suggests officials are considering all options between now and the Sept. 18 policy meeting, and are likely to lean against the risks of a slowdown in growth even though current economic data are relatively strong.

`Guarded Pessimism'

``There was a tone of guarded pessimism as opposed to guarded optimism,'' said Alan Blinder, a Princeton University professor, and vice chairman of the Fed from 1994 to 1996. ``I think they should and I think they will'' cut the benchmark rate from 5.25 percent. The reduction may not be more than half a percentage point, he added.

Stocks rose after Bernanke's remarks. The Standard & Poor's 500 Index advanced 1.1 percent to 1,473.99. The yield on the benchmark 10-year note was little changed at 4.53 percent.

Martin Feldstein, president of the National Bureau of Economic Research, said that there's a ``significant'' chance the U.S. economy will sink into recession. The previous one lasted from March to November 2001.

``My judgment is there is enough of a risk that the Federal Reserve should be responding,'' Feldstein said. ``I would be more comfortable if the fed funds rate were at 4.25 percent than 5.25 percent.''

Bush Plan

Bernanke spoke less than an hour before President George W. Bush pledged to alleviate the crisis among homeowners unable to pay their loans. Bush said he will let the Federal Housing Administration, which insures mortgages for low-and middle- income borrowers, guarantee loans for delinquent borrowers.

``It is not the responsibility of the Federal Reserve --nor would it be appropriate -- to protect lenders and investors from the consequences of their financial decisions,'' Bernanke said. ``But the developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account.''

Delinquencies in adjustable-rate subprime mortgages originated in late 2005 and 2006 ``are likely to rise further,'' Bernanke said. The Fed's mountainside gathering is attended this year by central-bank officials from some 30 countries and almost all of the Fed's policy-setting Open Market Committee.

Avoiding Risk

``Investor uncertainty has increased significantly, as the difficulty of evaluating the risks of structured products that can be opaque or have complex payoffs has become more evident,'' Bernanke said. ``Investors may have become less willing to assume risk.''

On Aug. 7, the Federal Open Market Committee voted to leave the main interest rate at 5.25 percent for the ninth straight time and reiterated that inflation was its main concern, though risks to economic growth had increased ``somewhat.''

Two days later, BNP Paribas SA, France's biggest bank, was forced to halt withdrawals from three of its investment funds, and money market rates rose worldwide, leading central banks to pump cash into the banking system. The Fed followed actions by the European Central Bank with its biggest cash infusion since the aftermath of the Sept. 11, 2001, attacks.

The moves weren't enough to stem the crisis of confidence in credit markets. On Aug. 17, after an emergency videoconference, the Fed cut the cost of direct loans to banks and revised its economic outlook, opening the door to lowering the benchmark federal funds rate, which covers overnight loans between banks.

Yields Drop

Still, since then, financing has remained costly or constrained for riskier securities and loans. Investors have fled to Treasuries, pushing yields on two-year notes to more than 1 percentage point below the Fed's 5.25 percent benchmark rate, a sign buyers anticipate a series of rate cuts.

The collapse of the housing boom in the first half of the decade is taking its toll on the broader economy. Residential construction has subtracted from economic growth for six straight quarters, the most since 1982, and lopped 0.6 percentage point off the expansion in the second quarter.

Gross domestic product rose at a 4 percent annual rate in April to June, the Commerce Department said yesterday, up from an initial estimate of 3.4 percent.

In the FOMC's Aug. 17 statement, the panel omitted references to inflation and said risks of slower growth had increased ``appreciably.''

Jackson Hole topics have ranged from industrial change and public policy in 1983 to monetary policy and uncertainty in 2003. Bernanke, wearing a suit and tie while other governors dressed casually, joked that the Kansas City Fed had ``outdone themselves'' by choosing the timely topic of housing. Last year, Bernanke spoke on economic integration. Today's speech marks the first time he addressed near-term policy concerns as chairman at the central bank forum.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Scott Lanman in Jackson Hole, Wyoming, at slanman@bloomberg.net.

Last Updated: August 31, 2007 18:32 EDT