Federal Reserve Chairman Ben Bernanke endorsed a second stimulus package in his testimony before the House of Representatives' Budget Committee on Monday morning. He also said the House should consider initiatives to improve access to credit for consumers, homebuyers, and others, which he said would promote job creation.
"ith 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 Chairman said.
Bernanke said time is needed for the financial sector to recover and credit markets to unfreeze, and that in the interim period it may be difficult to judge when the economy will recover. "[T]he uncertainty currently surrounding the economic outlook is unusually large," he noted, adding that the "optimal timing, scale, and composition of any fiscal package are unclear."
Bernanke said a second stimulus package can only be designed by elected officials, but he offered advice on its design.
"To best achieve its goals, any fiscal package should be structured so that its peak effects on aggregate spending and economic activity are felt when they are most needed, namely, during the period in which economic activity would otherwise be expected to be weak," he said.
"Any fiscal package should be well-targeted, in the sense of attempting to maximize the beneficial effects on spending and activity per dollar of increased federal expenditure or lost revenue; at the same time, it should go without saying that the Congress must be vigilant in ensuring that any allocated funds are used effectively and responsibly," he added.
Bernanke also said the package should be designed to limit longer-term effects on the federal government's deficit.
"Finally, in the ideal case, a fiscal package would not only boost overall spending and economic activity but would also be aimed at redressing specific factors that have the potential to extend or deepen the economic slowdown," he added.
By Patrick McGee and edited by Nancy Girgis
©CEP News Ltd. 2008