WASHINGTON – Federal Reserve Chairman Ben Bernanke on Wednesday publicly raised the prospect of a U.S. recession for the first time since the current slowdown began last year.

But he also signaled that “much” of the needed economic and financial market adjustment has already taken place and that conditions should improve later this year, suggesting there may not be much need for additional monetary stimulus, the Wall Street Journal reported Wednesday.

“It now appears likely that real gross domestic product [GDP] will not grow much, if at all, over the first half of 2008 and could even contract slightly,” Bernanke said in prepared remarks to the Congressional Joint Economic committee.

Two-straight GDP contractions are the common definition of a recession, though the official calculation used by the National Bureau of Economic Research is more complicated.

The economy should improve later this year, Bernanke said, assuming a stabilization in housing and credit markets and a boost in spending from the recently enacted fiscal stimulus package.

However, “the uncertainty attending this forecast is quite high and the risks remain to the downside,” Mr. Bernanke told lawmakers.

The U.S. economy lost jobs in January and February, and many economists expect a third-straight decline when the March report is released Friday. Bernanke said Wednesday that the unemployment rate, which still is historically low, should move higher in coming months.

Employment and income worries have, “together with declining home values and tighter credit conditions, have caused consumer spending to decelerate considerably” from last year’s “solid” pace, he said. Business spending plans have also been scaled back, he added.

The Fed, Mr. Bernanke said, has cut interest rates “substantially further” in response to the slowdown. The fed funds rate now sits at just 2.25%, down three full percentage points since September.

Those rate cuts, as well as efforts to boost liquidity in credit markets “will help to promote growth over time and to mitigate the risks to economic activity,” he said, adding that “much necessary economic and financial adjustment has already taken place.”

Notably, Mr. Bernanke omitted a pledge he has repeatedly made in recent months to act in a “timely manner as needed” to support growth from Wednesday’s prepared testimony. That could signal that he doesn’t see much more room to lower interest rates, especially with inflation still, according to Bernanke, “a source of concern.”

Higher food and energy prices have boosted price pressures, he said, as has the U.S. dollar’s decline against other major currencies. But inflation should moderate in coming quarters, he said.

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