Daina Jefferies, of Toronto, loads her bags into her vehicle after a shopping trip to the Walden Galleria Mall in Cheektowaga, N.Y. For the first time since Jimmy Carter was president, a Canadian dollar can buy as much as the U.S. dollar. That news on Thursday helped contribute to growing economic uncertainty.

Washington ? The Federal Reserve cut interest rates this week by a surprisingly large half-point in order to “get out ahead” of problems developing in credit markets that threaten the broader economy, Chairman Ben Bernanke told Congress on Thursday.

Most mainstream economists had expected a quarter-point cut. The bigger cut has prompted concern that maybe the Fed knows something that everyone else doesn’t. At a hearing before the House Financial Services Committee, Rep. Paul Kanjorski, D-Pa., bluntly asked Bernanke if there was “something out there that we are not aware of.”

“We took that action to try to get out ahead of the situation,” Bernanke answered, noting that housing-sector problems have extended into other areas, such as commercial credit, threatening the economy. The aggressive action, he suggested, was designed to prevent strains from becoming cracks.

Bernanke also warned that the rate cut wasn’t a cure-all for Wall Street’s recent turbulence.

“There is quite a bit of uncertainty,” he said, promising that the Fed will watch how events unfold in both financial markets and the broader economy and will stand ready for “adjusting policy” as needed.

Answering criticism from Rep. Ron Paul, a Texas Republican who’s running for president, Bernanke said he wasn’t bailing out Wall Street with the rate cut. The Fed, he said, must meet twin mandates of fostering economic growth and preventing inflation. The Fed won’t try to calm markets at the expense of letting inflation worsen, he vowed.

The Fed chairman also defended his predecessor, Alan Greenspan, who’s increasingly being blamed for fueling the housing crisis by lowering interest rates to 1 percent in 2002 and leaving them low through 2004. The result, his critics charge, was cheap money that weakened lending standards and inflated the housing market.

“I think the primary factor leading to the increase in the home prices, not only in the United States but in many countries around the world, was the generally low level of long-term rates,” Bernanke contended. International capital markets, not the Fed, determine long-term interest rates, he said.

Deflated dollar

The economic outlook grew more uncertain Thursday when the U.S. dollar set a record low against the euro, falling below $1.40. The Canadian dollar reached parity with the U.S. dollar for the first time since 1976.

While a weak dollar makes U.S. exports more competitive, it also makes imported goods more expensive, adding to inflationary pressures.

Japan, China and Saudi Arabia hold great amounts of U.S. government debt and are seeing the value of their investments erode as the dollar declines. They could demand higher interest rates, raising the U.S. government’s cost to borrow, or shift investments to the euro.

On the home front

The housing slump, the worst in 16 years, is likely to drag on well into 2008, when the nation will be voting for a new president. Home foreclosures – now at record highs – and delinquencies are likely to get worse, Bernanke said Thursday.

Against this backdrop, the Fed and other banking regulators, the Bush administration and Capitol Hill are scrambling to provide relief.

Proposals in Congress would expand federal backing of mortgages. The House on Tuesday passed legislation that would give more leeway to the Depression-era Federal Housing Administration, which insures mortgages for low- and middle-income borrowers. The Senate has its own bill. The administration, meanwhile, is working with the FHA to help squeezed homeowners.

President Bush said at a White House news conference Thursday “there is no question” these are “some unsettling times” in the housing and credit markets. “That’s why I look forward to working with Congress to modernize the FHA loans so that people can refinance their homes.”