Bernanke: I Support a Second Stimulus

Monday, October 20, 2008 10:12 AM



Bernanke said there were some encouraging signs that steps taken so far to unfreeze credit markets were helping, but it was too soon to assess their full effects.

WASHINGTON -- U.S. 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 said in prepared remarks for delivery to 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.

U.S. stocks jumped to a session high after Bernanke's comments endorsing 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.

Bernanke, who is 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 there were some encouraging signs that steps taken so far to unfreeze credit markets were helping, although it was too soon to assess their full effects.

"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 takes 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 concerns growing of 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."

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