The debate about whether or not rates will be cut further can now be put to rest. The answer is yes.  

In a speech before the group Women in Housing and the Finance and Exchequer Club in Washington today, Federal Reserve chairman Ben Bernanke made it crystal clear that there is still plenty of room for additional rate cuts.

After exhaustively bringing the audience up to date on the housing bust and credit crisis, Bernanke said that the economic outlook for 2008 has worsened, based on recent data like last week's employment report.

"[I]n light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary," Bernanke said. "[W]e stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks."

Weaker than expected housing demand, rising oil prices, and lower stock prices will likely weigh on consumer spending, he said.

Moreover, banks are still worried. "On the whole, despite improvements in some areas, the financial situation remains fragile, and many funding markets remain impaired," Bernanke said.

Triggered by last week's data on jobs, economists at Merrill Lynch, Morgan Stanley, and Goldman Sachs have concluded that the economy is currently in a recession. Although Bernanke agreed that the labor report was worrisome, he warned that it "would be a mistake to read too much into any one report."

Investors seemed unfazed by Bernanke's negative comments about the economic outlook, and instead focused on the Fed's promise to take action with further changes to monetary policy. Stocks rallied after spending the morning in negative territory.

The Federal Reserve's next rate decision will be announced on January 31.