U.S. Federal Reserve Chairman Ben Bernanke today said the U.S. economy is facing risks from housing, labor and credit markets, suggesting Fed policymakers remain on track to lower interest rates further next month.

“It is important to recognize that downside risks to growth remain,” Bernanke told members of the U.S. House Financial Services Committee in prepared semiannual testimony on the state of the economy and monetary policy.

Fed officials “will need to judge whether the policy actions taken thus far are having their intended effects,” Bernanke said, adding the central bank “will act in a timely manner as needed” to keep the economy on track.

Bernanke’s remarks suggest officials will most likely lower the federal-funds target rate at their March 18 meeting, as most economists expect.

The Federal Open Market Committee has already cut the fed-funds rate at which banks lend to each other by 2.25 percentage points since September to 3%, including 1.25 percentage points over an eight-day period last month.

In his testimony, Bernanke said the beleaguered housing market should continue to weigh on the U.S. economy, and nonresidential construction is also likely to slow.

Weakness in housing and construction appears to be spilling over into consumer and business spending, Bernanke said.

Regarding inflation, the Fed chief said, “inflation could be lower than we anticipate if slower-than-expected global growth moderates the pressure on the prices of energy and other commodities or if rates of domestic resource utilization fall more than we currently expect.”

In its semiannual testimony on the state of the economy and monetary policy, the Fed said it foresees a negative combination of below-trend growth and inflation rates topping 2% this year, though conditions are expected to start improving in 2009.

Meanwhile, inflation is expected to remain above the assumed comfort zone for policymakers of 1.5% to 2%.