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Bernanke says more government stimulus 'appropriate'

(Xinhua)
Updated: 2008-10-21 13:37

WASHINGTON-- US Federal Reserve Chairman Ben Bernanke told Congress Monday that consideration of more government stimulus is "appropriate" as the economic outlook is "exceptionally uncertain."

Federal Reserve Chairman Ben Bernanke addresses the Economic Club of New York regarding financial markets in New York, October 15, 2008.  [Agencies]

"With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," Bernanke said in his testimony before the Budget Committee in the House of Representatives.

The central bank chief suggested that Congress design the second fiscal package so that it would be timely and well-targeted and would limit the longer-term affects on the government's budget deficit.

The federal budget deficit hit a record high in the 2008 budget year, which ended on Sept. 30.

He also said any fiscal package should be structured so that its peak effects on aggregate spending and economic activity are felt when they are most needed, namely, during the period in which economic activity would otherwise be expected to be weak.

Meanwhile, the package should include provisions that would help break through the stubborn credit clog that is playing a major role in the economy's slowdown.

"If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers," Bernanke said. "Such actions might be particularly effective at promoting economic growth and job creation."

Early this month, the Congress approved a US$700 billion economic rescue plan, authorizing the Bush administration the largest financial intervention since the Great Depression.

The legislation was signed into law by President George W. Bush shortly after the congressional approval.

Under the plan, the federal government has the power to buy bad mortgage-related securities and other devalued assets from embattled financial institutions to help them resume lending to businesses and consumers, preventing a widening credit crisis from sending the economy into a recession.

However, many analysts predict that the economy will shrink later this year and early next, which would meet the classic definition of a recession. Some believe that the economy already jolted into reverse during the July-to-September quarter.

"Because the time that will be needed for financial normalization and the effects of ongoing credit problems on the broader economy are difficult to judge, the uncertainty currently surrounding the economic outlook is unusually large," Bernanke said in his testimony.

"The pace of economic activity is likely to be below that of its longer-run potential for several quarters," the Fed chief said.