Bernanke: Running out of weapons in the battle against economic turmoil.
Federal Reserve chairman Ben Bernanke urged Congress last month to pass a second economic stimulus plan, saying that the US economy was likely to remain weak for several quarters, with some risk of a protracted slowdown.
With the federal funds rate target already lowered to 1.5% on October 8, the central bank is running low on ammunition on the interest rate front. Bernanke, in effect, is calling for some help with the heavy lifting of boosting the economy.
Bernanke also urged Congress to consider the use of loan guarantees and direct lending by government to help get the credit markets functioning again. “If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers,” according to Bernanke. “I suspect more people are recognizing that the credit constraints really are hitting home, that people can’t get auto loans, that there are plenty of firms small and large that can’t get ordinary credit, that housing mortgage credit is harder to get,” he said.
The Fed chairman told the House Budget Committee that any stimulus program should be activated as quickly as possible. “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.
The effects of a $168 billion fiscal stimulus package in February have largely worn off. House speaker Nancy Pelosi has called on all relevant committees to schedule hearings on the key provisions of a second recovery package that will promote the creation of jobs and help restore investor and consumer confidence.