UPDATE: DJIA up 400+ points.
WASHINGTON (MarketWatch) — Another shot of fiscal stimulus may be needed now to help the U.S. economy recover from what could be a drawn-out slowdown, Ben Bernanke said Monday.
“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,” the Federal Reserve chairman said in prepared testimony to the House Budget Committee.
It was the second time this year that Bernanke had endorsed a fiscal stimulus program, a rare admission from the central bank that monetary policy can’t fix the economy by itself. This spring, Congress passed a stimulus bill that featured a $600 per person tax rebate. The rebates seemed to keep the economy afloat through the summer before the latest credit crunch hit in September.
Repeating the same general principles that he called for in January, Bernanke said any new plan should be designed to be timely, temporary and targeted.
The Fed chief suggested that Congress should include “measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers.” He provided no details in his prepared remarks and was expected to face questions from lawmakers.
Fiscal-stimulus plans generally encompass tax and spending policies by the government to temporarily stimulate demand, either by returning money to taxpayers or by spending the money itself.
Democratic leaders in the House and Senate have said they’d like to pass a second major stimulus plan quickly, either in a lame-duck session after the Nov. 4 election, or more likely, in early January once the new Congress is sworn in.
Democrats say the bill would likely put about $150 billion into the economy, or about 1% of gross domestic product.
The Democratic bill could include such provisions as new temporary tax breaks, money for roads, bridges and other infrastructure projects, aid to cash-strapped state governments, and funds for food stamps and unemployment insurance. Last month, the House passed a $61 billion bill with some of those measures last month, but the measure died in the Senate.
Republicans have generally been less enthusiastic about a new demand-side stimulus plan, preferring to focus their attentions on longer-term supply-side policies to support growth, such as trade deals or permanently extending the tax cuts passed in 2001 and 2003. In his comments on the economy, Bernanke said he’s seen some encouraging signs that the severe credit blockage is easing after last week’s unprecedented coordinated global effort to recapitalize all major banks and to guarantee short-terms bank debts.
“It is too early to assess their full effects,” he said, adding that he’s confident that the measures will eventually restore trust in the financial system and get normal credit flowing again.
“That said, the stabilization of the financial system, though an essential first step, will not quickly eliminate the challenges still faced by the broader economy,” Bernanke added. “The pace of economic activity is likely to be below its longer-run potential for several quarters.”
Slower global growth and steady expectations for inflation “should bring inflation down to levels consistent with price stability,” he said.
Barney Frank, D-MA, said to be especially excited about any new “stimulus package”. And for bosco, some accompanying music:
