U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke both told the U.S. Senate Banking Committee on Thursday that the U.S. economy will not fall into recession.

"I believe that we are going to continue to grow, albeit at a slower rate, and the risks are to the downside," Paulson said at a hearing before the Senate committee.

He added that the Bush administration acted quickly to boost the economy. "I don't have a crystal ball. But we didn't sit back and wait," said the secretary.

"What we've done is moved very quickly, I believe, you know, Congress and the administration, with a stimulus package," said Paulson, referring the 168 billion-dollar economic rescue package President George W. Bush signed Wednesday into law.

"The U.S. economy is fundamentally strong, diverse and resilient," said Paulson, noting: "Yet after years of unsustainable home price appreciation, our economy is undergoing a significant and necessary housing correction."

Bernanke, chief of U.S. central bank, also told the lawmakers that he believes that the U.S. economy will endure "a period of sluggish growth."

That will be "followed by a somewhat stronger pace of growth starting later this year" as the effects of the Fed's rate cuts and a newly enacted economic stimulus package begin to be felt, he estimated.

Although the forecast envisions an improving picture, both Paulson and Bernanke agreed outlook for the economy is noticeably worse than it was a few months ago.

"The housing correction, high energy prices and capital market turmoil are weighing on current economic growth," said Paulson.

Bernanke elaborated more on the economy. "In part as the result of the developments in financial markets, the outlook for the economy has worsened in recent months, and the downside risks to growth have increased," he said.

To date, the Fed chief said, the largest economic effects of the financial turmoil appear to have been on the housing market, which has deteriorated significantly over the past two years or so.

"Further cuts in homebuilding and in related activities are likely," he cautioned, noting conditions in the labor market have also softened.

"The softer labor market, together with factors including higher energy prices, lower equity prices, and declining home values, seem likely to weigh on consumer spending in the near term, " he noted.

On the inflation front, Bernanke said that inflation expectations, to date, appear to have remained reasonably well anchored.

Some lawmakers seemed to be not satisfied by the recent actions taken by the Bush administration and the Federal Reserve.

Senator Richard Shelby of Alabama said that he doubts whether the stimulus package would prove to be effective.

"Even if every consumer spends their 600 dollar tax rebate, I' ve equated it to pouring a glass of water in the ocean and expecting it to make a difference," Shelby said. "I hope I'm wrong. "

Senator Robert Menendez pointed out that Goldman Sachs is one of the growing number of investment banks forecasting a recession this year and suggested that Paulson and Bernanke "hit the snooze button" when alarm bells about the economy first went off last year.

Paulson, a former CEO of Goldman Sachs, responded immediately: "If you're trying to talk the economy up, I'd hate to see you talk it down..."

"I'm just trying not to hide my head in the sand, either," Menendez shot back.

"I'm not either," Paulson argued, noting he was "very open" to looking at other ideas to boost the economy.

"I look at many ideas, look at them all the time. And it's a lot easier for people to say, 'Do something,' than to say what it is we should do," said the secretary.