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Bernanke says another US stimulus plan may be needed

(Agencies)
Updated: 2008-10-21 00:05

WASHINGTON - US Federal Reserve Chairman Ben Bernanke told Congress on Monday that another wave of government spending may be needed as the economy limps through what could be an extended period of subpar growth.

Federal Reserve Chairman Ben Bernanke participates in a House hearing on 'Economic Recovery - Options and Challenges' on Capitol Hill in Washington, October 20, 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 told a congressional panel.

It was the first time the central bank chairman had explicitly endorsed a second stimulus package. The government sent out about $100 billion in tax rebate checks over the summer to try to jump-start the economy, but consumer spending has struggled since then. Retail sales fell for three consecutive months through September.

US stocks jumped to a session high after Bernanke's comments in support of another stimulus package, though the Dow Jones industrial average gave up a little ground afterwards. Prices for government debt slipped initially while the dollar edged up.

"One of the most significant things is he's endorsing another fiscal package, which I think makes a lot of sense," said Nigel Gault, director of US economic research at Global Insight in Lexington, Massachusetts.

"The government is acting as a support for the financial system, but it's also got to act as a support for the real economy, almost as a spender of last resort because the private sector spending is going to be declining pretty sharply."

For many months, Democrats in Congress have been pushing for a second economic stimulus measure that could spend up to tens of billions of dollars on domestic construction projects to repair aging roads, bridges and other infrastructure while at the same time creating jobs and local investment.

Democrats also want to provide more help to the poor hurt by the economic downturn, largely in the form of expanded food stamps and help with winter heating costs. They also want to expand federal spending to help states pay for growing health care costs for the poor.

Democrats, along with some Republicans, also have backed expanding unemployment benefits for the long-term jobless.

Some of these ideas were offered by Democrats during negotiations on the first economic stimulus passed early this year, but they were rejected by the Bush administration.