Federal Reserve Chairman Ben Bernanke pledged anew Wednesday to do everything in his power to lift the country out of recession, while defending the extraordinary steps the Fed has taken to fight the worst credit and financial crisis since the 1930s.

The central bank has slashed a key interest rate to record lows and has launched a series of radical programs in hopes of getting credit — the economy's oxygen — to flow more freely again to American consumers and businesses, and stabilize Wall Street. Such relief would help revive the U.S. economy, which has been mired in recession since December 2007.

Recent economic statistics have been dismal, with many economies, including ours, having fallen into recession, Bernanke said in remarks to the National Press Club. In the United States, the Federal Reserve has done, and will continue to do, everything possible within the limits of its authority to assist in restoring our nation to financial stability and economic prosperity as quickly as possible.

In a separate report Wednesday, the Fed sharply downgraded its projections for the U.S. economy this year. Unemployment will rise to between 8.5 and 8.8 percent, the central bank said, from its current level of 7.6 percent.

The Fed also forecast that the economy will shrink between 0.5 and 1.3 percent this year, down from its mid-November estimate that the economy might decline 0.2 percent or grow 1.1 percent.

Unemployment will go above 8 (percent) for sure this year, Bernanke said, adding that the prospects for recovery depend on government policy.

Bernanke said the administration's efforts to rescue the financial sector to get credit flowing again are as important as the $787 billion stimulus package signed into law by President Barack Obama on Tuesday.

If we can take strong and aggressive action ... we can break the back of this thing and we can begin to see improvements in 2009, Bernanke said. If we fail ... then the situation will continue to deteriorate.

The Fed has been exploring new tools — as well as expanding existing programs — to provide further economic and financial relief, although Bernanke didn't provide any new details on Wednesday.

With all the Fed's programs to provide loans or buy debt, its balance sheet has mushroomed to just under $2 trillion, from around $900 billion in September.

Critics worry the Fed's actions have the potential to put ever-more taxpayers' dollars at risk, spur inflationary pressure in the future and encourage moral hazard, where companies feel more comfortable making high-stakes gambles because the government will rescue them.

Bernanke, however, sought to downplay some of those concerns.

The credit risk with our nontraditional policies is exceptionally low, he said, adding that when the economy is on the mend, the Fed's programs can be quickly reversed to avoid risks of future inflation.

The great bulk of the Fed's lending is generally short term and backed by more than ample assets, Bernanke said.

In other controversial moves, the Fed last year provided financial backing for JPMorgan Chase's take over of Bear Stearns, and bailed out insurer American International Group. Although this carries more risk than our traditional activities, Bernanke said the Fed intends over time to sell the assets it holds from those bailouts in a way that maximizes the return to taxpayers.

Elsewhere Wednesday, another Fed official said the U.S. economy likely will show signs of recovery this year, but warned that unemployment rates will probably rise further and the economic outlook will be similar to 2008.

Sandra Pianalto, president of the Federal Reserve Bank in Cleveland, projected real gross domestic product to decline sharply in the first half of 2009, followed by a modest upturn in the second half.

Unfortunately, I don't expect this to get better until we see stability returning into housing and financial markets, Pianalto said in a speech to commercial developers in Columbus, Ohio.

Bernanke repeated a pledge — made last week — to keep Americans better informed about its efforts to ease credit and financial problems.

On that front, the central bank is developing a new Web site that will provide detailed information on its efforts. The Fed hopes to have the site operational in the coming days.

The Fed's No. 2 official, vice chairman Donald Kohn, also is leading a committee to review the central bank's disclosure policies related to its lending programs and its balance sheet, which outlines its efforts to ease credit problems by providing loans and buying debt.

The presumption of the committee will be that the public has a right to know, Bernanke said.

In another move to provide Wall Street and Main Street with better insights into the Fed's thinking about the economy, Bernanke said the central bank will start publishing longer-term projections on economic activity, unemployment and inflation beyond the three years now provided.