US Federal Reserve Chairman Ben Bernanke told Congress today that another wave of government spending may be needed as the economy limps through what could be an extended period of poor 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," Mr 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.
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 stimulus plan, depending on its makeup, and would look to Bernanke and others for guidance.
US stocks were higher in early afternoon trading, and prices for government debt and the dollar also rose. European markets also rose as banks there took advantage of government lifelines and credit markets began to thaw.
Mr Bernanke, who is testifying before the US 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.
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 on domestic construction projects to repair ageing roads, bridges and other infrastructure while at the same time creating jobs and local investment.
Democrats also want to provide more help to the poor hurt by the economic downturn, largely in the form of expanded food stamps and help with winter heating costs. They also want to expand federal spending to help states pay for growing health care costs for the poor.
Democrats, along with some Republicans, also have backed expanding unemployment benefits for the long-term jobless.
Some of these ideas were offered by Democrats during negotiations on the first economic stimulus passed early this year, but they were rejected by the Bush administration.
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 28-29th, and economists and investors widely expect another trim from the current rate of 1.50 per cent.
With concerns growing of a global recession, oil prices have fallen sharply, taking the edge off of inflation. Mr Bernanke said that if those trends are not reversed, that "should bring inflation down to levels consistent with price stability."
Reuters