Bernanke warms to 2nd stimulus plan
WASHINGTON (Reuters) - 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.
"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.
Another central bank official, Atlanta Fed President Dennis Lockhart, echoed Bernanke's gloomy outlook, saying that the global credit crisis will chill U.S. economic growth well into next year, but added that powerful steps to unlock financial markets have been taken and will work.
"We at the Atlanta Fed expect weakness to persist for some time into 2009 as credit markets gradually improve," Lockhart told the Buckhead Rotary Club.
Bernanke's endorsement of a new stimulus was the first time the chairman of the Fed -- the U.S. central bank -- had explicitly endorsed such a package.
The government sent out about $100 billion in tax rebate checks over the summer to consumers to try to jump-start the economy, but consumer spending has struggled since then. Retail sales fell for three consecutive months through September.
The White House also appeared to be warming to the idea of another spending program. Spokeswoman Dana Perino said the Bush administration was "open" to a new stimulus plan, depending on its makeup, and would look to Bernanke and others for guidance.
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 or more on domestic construction projects, expanded food stamps and broader federal spending to help states pay for growing health care costs for the poor.
Depending on the outcome of the November 4 general election, there is a chance the legislature could hold a session in November and consider a second fiscal stimulus bill then. If Democrats do very well in the election, it could embolden them to move sooner rather than wait until next year.
Bernanke, who was testifying before the U.S. House of Representatives budget committee, said Congress should consider including measures to improve access to credit, but did not specify what form they ought to take.
He said the government's recent efforts to combat the credit crisis, including plowing $125 billion into nine banks, appeared to have averted a significant banking meltdown. There were some "encouraging signs" that the steps taken so far were helping to unfreeze credit markets, although it was too soon to assess the full effects, he said.
"The stabilization of the financial system, though an essential first step, will not quickly eliminate the challenges still faced by the broader economy," he said.
The Federal Reserve has lowered its benchmark interest rate by 3.75 percentage points in the past 13 months as the financial turmoil exacts an increasingly heavy toll on the broader economy. Its next policy-setting meeting is scheduled for October 28-29, and economists and investors widely expect another trim from the current rate of 1.50 percent.
With concern growing about a global recession, oil prices have fallen sharply, taking the edge off of inflation. Bernanke said that if those trends are not reversed, that "should bring inflation down to levels consistent with price stability."
U.S. headline consumer inflation peaked at a year-on-year rate of 5.6 percent in July and has since drifted back to a reading of 4.9 percent last month.
Lockhart agreed with Bernanke that price pressures were heading down, and said he is not worried that massive liquidity injections by the central bank risked sparking price pressures by boosting the money supply.
"I'm quite confident that the inflationary pressure that might come if the money supply were growing dramatically and growing in an unrelenting fashion ... I'm quite confident that's not going to occur," he said, noting the Fed conducts regular open market operations to manage money supply.
Separately, Fed Gov. Randall Kroszner did not make comments on the outlook for the economy or interest rates in a speech on financial institution risk management in Baltimore.
(Additional reporting by Richard Cowan and Tabassum Zakaria in Washington, Alister Bull in Atlanta, Ros Krasny in Baltimore and Burton Frierson in New York; Writing by Emily Kaiser; Editing by James Dalgleish)
- Pope attacks mega-salaries and wealth gap in peace message
- Air strike kills 15 civilians in Yemen by mistake: officials
- Probation for drunk Texas teen driver who killed four sparks backlash
- Atheists face death in 13 countries, global discrimination: study
- South Africa admits error over 'schizophrenic' Mandela signer |
Thousands line up to say goodbye to Nelson Mandela, whose body is lying in state in Pretoria. Slideshow