Ben Bernanke, chairman of the US Federal Reserve, said today the world’s central banks stand ready to take more action to calm markets after admitting that global financial markets remain under “severe stress”.

Mr Bernanke, speaking at a European Central Bank (ECB) conference in Frankfurt, said: “The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain.

“For this reason, policymakers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant.”

The US Fed chairman gave his address ahead of the G20 summit in Washington, where industrialised and developing nations will examine ways to stimulate the world economy in the face of spreading recession.

This morning, the 15-member eurozone fell into recession for the first time since the single currency was introduced in 1999, after GDP shrank for the second consecutive quarter – the technical definition of a recession.

Yesterday, Germany, Europe’s largest economy, officially fell into recession for the first time in four years, following Ireland which is already experiencing a full-blown slowdown.

Mr Bernanke said central banks had taken steps to help salve jitters but admitted that any gains from these actions were merely “tentative”. He said: “Financial markets remain under severe strain.”

In October, America led the way in a co-ordinated interest rate cut, slashing borrowing costs by 1.5 per cent. The Bank of England also cut rates and was joined by the ECB while central banks in Switzerland, Canada, Sweden and China followed suit.

Jean-Claude Trichet, President of the ECB said today: "The world can count on a continuation of this fruitful cooperation among central banks and it can also count on the fact that this cooperation occurs fully in line with our respective mandates and in exceptional times like these, can even strengthen their achievement.”

Last week, the ECB made a further rate cut to 3.25 per cent on the same day that the Bank of England slashed borrowing costs by 1.5 per cent to 3 per cent.

This morning, Juergen Stark, a member of the ECB’s executive board, signalled that the ECB would be prepared to cut interest rates further.

He said: “Every time the ECB meets, we obviously consider how the situation is, how the economy is doing, how prices are likely to continue developing, and the ECB President said recently that if the analysis warrants it, then it’s not to be ruled out that we continue to use this instrument.

While Miguel Angel Fernandez Ordonez, a member of the ECB's Governing Council concurred, stating: "Trichet already said this after the last meeting, clearly there’s a chance.”

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