Bernanke: stimulus should be 'significant,' declines to provide number UPDATE

Mon, Oct 20 2008, 15:49 GMT
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(updates with additional details from Q&A)

WASHINGTON (Thomson Financial) - Federal Reserve Chairman Ben Bernanke said today that any congressional stimulus package should be "significant," but he declined to provide a number for lawmakers considering such a package.

"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 today in testimony before the House Budget Committee.

He recommended that the Congress consider measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers, which "might be particularly effective at promoting economic growth and job creation." This is because the tightened conditions which led to the slowdown thus far could contribute to delaying economic recovery.

He noted state and local governments, who have been facing 'very high rates' in the municipal bond market. "This might be an area where the federal government can assist in state and local governments at lower cost by simply helping them attain credit at lower rates," Bernanke said.

He called infrastructure spending "one form of capital if it is well invested," but suggested that the impact of this type of spending on the US economy in the near-term would likely be limited.

Bernanke said "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 also recommended the package seek to maximize the beneficial effects on spending and that the allocated funds be used responsibly.

"Any program should be designed, to the extent possible, to limit longer-term effects on the federal government's structural budget deficit," Bernanke said.

Elsewhere, Bernanke noted further declines in business investment in the coming months. He also anticipates the contribution of international trade to the US economy to be less dramatic than in the first half of the year as global growth continues to slow.

A recent decline in commodity prices "together with the likelihood that economic activity will fall short of potential for a time, should bring inflation down to level consistent with price stability," Bernanke said in comments that suggest an openness to further federal funds rate cuts down the road.

tessa.moran@thomsonreuters.com

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