Bernanke backs second stimulus

Federal Reserve Chairman Ben Bernanke on Monday said it is “appropriate” for Congress to consider a second stimulus measure to boost the ailing economy. 

Bernanke, who appeared before the House Budget Committee, stated in prepared remarks that any potential stimulus would require trade-offs and could burden future generations and that the volatile economic situation would make it difficult to give such a measure a maximum effect.

{mosads}“All that being said, 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.

He stressed the importance of crafting a second stimulus measure in a way to ensure that its impact would be maximized.

“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 stated.

In his remarks, Bernanke painted a gloomy picture of the economic situation.

“Incoming data on consumer spending, housing and business investment have all showed significant slowing over the past few months, and some key determinants of spending have worsened: Equity and house prices have fallen, foreign economic growth has slowed and credit conditions have tightened,” Bernanke said. “One brighter note is that the declines in the prices of oil and other commodities will have favorable implications for the purchasing power of households.”

The Fed chairman cautioned that “because the time that will be needed for financial normalization 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.”