Ben Bernanke, Chairman of the US Federal Reserve, provided the clearest indication yet that he intends to fight America’s looming recession as he pledged to act “as needed” to shore up its flagging economy.

In remarks that economists said reinforced the case for a further interest rate cut, Mr Bernanke said that the economic outlook had deteriorated in recent months and pinned much of the blame on the credit crunch.

Speaking to a Senate Banking Committee hearing into America’s mortgage meltdown, Mr Bernanke said that the central bank “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks”.

He said: “More expensive and less available credit seems likely to continue to be a source of restraint on economic growth. The outlook for the economy has worsened in recent months and the downside risks to growth have increased.”

Brian Fabbri, chief US economist for BNP Paribas, said: “This is the strongest statement yet by the Fed that it is dedicated to supporting growth and shows that it has had a revolution in its thinking.

“Bernanke emphasised the financial strains in a statement that clearly directed policy toward improving growth prospects. Even since its last rate cuts at the end of January, the Fed seems to have become more determined to do what it can to support the economy.”

Although Mr Bernanke alluded to the need for the Fed to keep an eye on inflation, potentially reducing its scope for further rate cuts, Mr Fabbri said that such a brief mention further emphasised that economic growth was by far the Fed’s biggest priority.

Eliot Spitzer, the New York Governor, told a separate hearing of the House Financial Services subcommittee on capital markets that the difficulties faced by the bond insurers could turn into a “financial tsunami” if they did not receive big cash injections.

Bond insurers such as MBIA and Ambac guarantee the interest and principal payments on securities that they underwrite in the event of default by the issuer. They face billions of dollars in claims on mortgage bonds, because of a leap in defaults on the home loans that back them, which they will struggle to meet. Insurers’ failure to pay out could lead to more writedowns in Wall Street firms and other holders of the bonds that the insurers underwrite.

Eric Dinallo, the New York Insurance Department superintendent, who is leading attempts to bail out some of the main bond insurers, yesterday outlined a plan to split the main securities underwriters into two businesses. One would consist of the healthy part of the business, which underwrites safe local government bonds that form the bulk of their operations. The other would consist of high-risk mortgage bonds, Mr Dinallo told the hearing. Mr Spitzer added that if the bond insurers did not find fresh capital within three to five business days, they faced a good chance of Mr Dinallo's proposal being enacted.

Separately, it emerged that Citic, the Chinese securities group, is hoping to increase the stake it receives from its recently agreed $1 billion investment in Bear Stearns from 6 per cent to 9.9, to account for a decline in the Wall Street firm’s share price since the deal.

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