Contraction is possible, but most adjustments are complete

Federal Reserve Chairman Ben Bernanke 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, especially with inflation still a concern. Though Mr. Bernanke testifies often to Congress, Wednesday's appearance was unique in that it came fresh on the heels of three major events for the Fed: last month's aggressive three-quarter-percentage-point interest rate cut to shore up the economy; its intervention in J.P. Morgan Chase & Co.'s proposed takeover of Bear Stearns Cos.; and a Treasury blueprint released Monday that could eventually give the Fed unprecedented oversight over -- and accountability for -- virtually every corner of the financial markets.