21 Oct 2008

Bernanke backs US stimulus plan

8:01 pm on 21 October 2008

US Federal Reserve chairman Ben Bernanke has endorsed the idea of a second economic stimulus plan for the United States this year.

Dr Bernanke has also warned of a possible "protracted slowdown."

He told the House of Representatives budget committee on Monday that consumption was falling, confidence was low and the housing market still depressed.

House Speaker Nancy Pelosi, a Democrat, has suggested that Congress may convene after presidential elections on 4 November to pass a projected $US150 billion tax cut and spending package.

President George Bush signed into law a $US168 billion stimulus package in February, but Senate Republicans rejected an attempt by the House to pass a second package in September.

Asked about a recession, Dr Bernanke declined to use the word, but said "the pace of economic activity is likely to be below that of its longer-term potential for several quarters."

A contraction for two consecutive quarters is the definition of a recession.

When pushed to say whether a recession was under way, Dr Bernanke replied: "We are in a very serious slowdown in the economy which has very serious consequences for the public. Whether it's called a recession or not is of no consequence."

He gave no firm hint of further interest rate cuts to help the economy, but said inflationary pressures were falling due to declining prices of commodities and imports.

On 8 October, the US Federal Reserve cut its interest rates by 0.50 percentage points in a coordinated move with other major central banks.

The key federal funds rate is currently 1.5%. The Federal Open Market Committee holds its next rate-setting meeting on 28-29 October.