NEW YORK (Reuters) - Federal Reserve Chairman Ben Bernanke said on Thursday that the U.S. economic outlook had worsened, and more interest rate cuts may be needed.

“In light of recent changes in the outlook for and the risks to growth, additional policy easing may be necessary,” Bernanke said in prepared remarks. “We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.” KEY POINTS: * Bernanke says baseline outlook for 2008 has worsened, downside risks more pronounced * Bernanke says December employment report ‘disappointing’; mistake to read too much into one report COMMENTS: ALAN RUSKIN, CHIEF INTERNATIONAL STRATEGIST, RBS GREENWICH CAPITAL, GREENWICH, CONNECTICUT:

“The wires have almost no headlines to counter the dovish headlines. The headlines pay only mild lip service to inflation pressures in the comment that ‘Fed to monitor inflation, price expectations’, that looks weak in contrast to the headline ‘Fed paying particular attention’ to housing”.

“This is more evidence that Bernanke remains extremely worried that the credit accelerator feedback from credit to the real economy and back again has begun in earnest. The mix of Trichet hawkish and Bernanke dovish reinforces the euro/dollar rally though it does not look like it has obvious legs to take out $1.4825 immediately.” DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES INTERNATIONAL, NEW YORK:

“It is hardly surprising that he is acknowledging that the economy is facing considerable downside risk, and he is saying incoming information has worsened and the downside risks have become more pronounced.

“It is probably likely to solidify expectations around what is probably a consensus anyway, which is that the Fed will move 50 basis points (at the January policy meeting). That is what a lot of people think they will do, and now more people will think that way.” ANGEL MATA, MANAGING DIRECTOR OF LISTED EQUITY TRADING, STIFEL NICOLAUS CAPITAL MARKETS, BALTIMORE:

“Everybody has been waiting for this. It’s important for him to lead emotionally as well as lead with rate cuts. I think he’s come to terms with the fact that while inflation may be a concern down the road, he has to take care of the train that’s coming at him right now, which is the fear of a recession. The market was in a free fall, and he’s basically given investors hope, and I think you’ll see a pretty strong rally.” STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO., GREENWICH, CONNECTICUT:

“This is what the markets were hoping he would say and it qualifies that the Fed will likely cut rates by 50 basis points. Reaction to these comments is reassuring.

“He also made some comments that he would be monitoring inflation expectations, not so much inflation, so he’s trying to look beyond the immediate concerns, and if the outlook is not so alarming then that could give him more leeway.” DAVID POWELL, CURRENCY STRATEGIST, IDEAGLOBAL, NEW YORK:

“It’s definitely dollar negative and confirms the market’s view that we’re going to get 50 basis points of rate cuts in January. ‘Substantive additional action’ in particular sounds a lot more like 50 basis points than 25. His tone overall is dovish, and that’s negative for the dollar, positive for equities and a help to high-yielders.

“When one looks back at Trichet’s comments, it’s clear we’re getting very different tones from the two central bankers. Trichet said the ECB didn’t even talk about the possibility of easing. Bernanke is delivering the exact opposite message, and that points to further upside for euro/dollar.”