U.S. Federal Reserve Chairman Ben Bernanke indicated today that the Fed is prepared to lower interest rates once again, saying downside risks to economic growth remain from housing, employment and credit markets.

But he appeared more upbeat on the U.S. economy’s prospects for later this year and next when the combination of fiscal and monetary stimulus kicks in.

“At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt,” Bernanke said in prepared testimony to the Senate Banking Committee today.

Bernanke cautioned that “downside risks to growth remain, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated, or that credit conditions may tighten substantially further.”

The Federal Open Market Committee, he said, “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.” He also signaled that future policy moves will depend on the Fed’s medium-term forecast for growth and inflation “as well as the risks to that forecast,” since policy works with a lag.

Bernanke was testifying along with Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.

Paulson said that he expects the economy to stay in positive territory, while Cox talked about enforcement efforts underway.