Bernanke: Economy in "rough time"

By Mark Felsenthal

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke told a House of Representatives panel on Wednesday the U.S. economy is going through a "rough time" and urged lawmakers to approve Treasury Department proposals to back up mortgage markets.

"I think the housing market is really the central element of this crisis," Bernanke told the House Financial Services Committee. "And anything we can do to strengthen the housing market, to strengthen mortgage finance, would be beneficial."

On the second day of two days of congressional testimony, the Fed chairman painted a gloomier economic picture than in recent weeks, suggesting the U.S. central bank is unlikely to raise benchmark rates from the current 2 percent at its next meeting on August 5.

Underscoring the recent economic deterioration, minutes of the Fed's last meeting on June 24-25, released on Wednesday, showed officials thought at the time they might be able to begin raising benchmark interest rates from 2 percent as soon as August.

PUBLIC PAIN, PRIVATE GAIN

For the second day in a row, Bernanke sought to convince sometimes skeptical members of Congress to send a strong signal to financial markets that the U.S. government stands behind embattled mortgage finance companies Fannie Mae and Freddie Mac by approving a backstop package proposed on Sunday.

Treasury Secretary Henry Paulson also returned to Capitol Hill in a bid to win backing for his plan to extend unlimited credit and the possibility of equity purchases to the companies.

The mortgage enterprises' share prices slid abruptly last week amid worry they may lack sufficient capital to weather crumbling housing markets. Policy-makers consider them vital to any recovery of the beleaguered housing market, and Paulson's plan had backing from the Fed, the White House, and congressional leaders.