Bernanke Calls For Stimulus


Federal Reserve Chairman Ben Bernanke on Monday advised Congress to consider another economic stimulus package to help consumers cope with a slowing economy, but noted that funds must be dispersed wisely to be effective.

"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 before the House budget committee.

But Bernanke, acknowledging the mounting budget deficit, said stimulus funds need to be "well-targeted," in areas that will push forward a so-called knowledge-based economy. He mentioned areas like research and development, technology, energy and science, as well as basic infrastructure, which the Roosevelt administration invested in heavily to bring the country out of the Great Depression.

Finally, Bernanke noted that Congress should focus on improving access to credit by consumers, homebuyers and businesses, perhaps by providing direct loans or otherwise supporting a lending program. While the government has taken strong initiative to help grease the wheels of the financial system by lowering a key interest rate target, easing lending standards and structuring a program to inject $250 billion in capital into cash-starved banks in return for preferred equity.

Banks that will take part in the program include Goldman Sachs (STOCK QUOTE: GS), Morgan Stanley (STOCK QUOTE: MS), JPMorgan Chase (STOCK QUOTE: JPM), Bank of America (STOCK QUOTE: BAC), Merrill Lynch (STOCK QUOTE: MER) Citigroup (STOCK QUOTE: C), Wells Fargo (STOCK QUOTE: WFC), Bank of New York Mellon (STOCK QUOTE: BK) and State Street (STOCK QUOTE: STT).

Still, Bernanke noted, a contraction of lending has only started to hit consumers and businesses, and if it continues, it could worsen the decline.

"The extraordinary tightening in credit conditions has played a central role in the slowdown thus far and could be an important factor delaying the recovery," said Bernanke. He added that improving credit conditions could be "particularly effective" to promote economic growth and job creation.

Bernanke refused to give a direct answer on two key questions. While noting that other economists would provide their own opinions of whether the country has officially entered recession, Bernanke said the term was irrelevant, since it is clear that the economy is in a serious downtown.

"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," said Bernanke. "Equity and house prices have fallen, foreign economic growth has slowed and credit conditions have tightened."

"When asked repeatedly how large a stimulus package should be in dollar terms, he replied: "I think it should be significant but I can't give you a number."

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