Fed chief tells Congress new stimulus bill needed

20 October 2008 17:24  [Source: ICIS news]

WASHINGTON (ICIS news)--Federal Reserve Chairman Ben Bernanke on Monday warned that broad federal measures to revive the economy will require time to take effect and he urged Congress to pass another economic stimulus package soon.

 

Bernanke, testifying before the House Budget Committee in his regular semi-annual economic outlook, said that while he is confident that the $700bn (€525bn) bailout package approved by Congress early this month will restore confidence in financial markets, full benefits of the rescue plan might not be apparent for several calendar quarters.

 

“The time needed for economic recovery will depend greatly on the pace at which financial and credit markets return to more-normal functioning,” Bernanke said.

 

“Because the time that will be needed for financial normalisation 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,” he said.

 

The Fed chairman noted that even before the credit crisis hammered US and global markets, “economic activity had shown considerable sings of weakening”.

 

He cited the worsening US jobs situation, significant slowing in recent months in consumer spending, housing and business investment along with reduced expectations for growth in US export trade.

 

“Stabilisation of the financial system, though an essential first step, will not quickly eliminate the challenges still faced by the broader economy,” Bernanke said.

 

Because the financial markets rescue plan will take several quarters to have full effect, Bernanke suggested strongly that Congress should take prompt action to stimulate the economy for the near term.

 

“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.

 

Congress passed a $150bn stimulus package in January this year that was credited with giving the US economy a needed boost - until the full force of the financial crisis struck.

 

Bernanke said a new stimulus package should not only boost overall spending and economic activity but also include “measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers”.

 

“Such actions might be particularly effective at promoting economic growth and job creation,” he said.

 

Congress is expected to reconvene after the 4 November US national elections, and there already has been talk among Democrat leaders in the House about the need for another stimulus bill.

 

($1 = €0.75)

 

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