His remarks will likely serve to prod Congress and the White House toward faster action on an issue that has become the subject of intense election-year debate.
Thursday afternoon, reports emerged that President Bush has scheduled a speech for Friday to lay out his criteria for his economic stimulus program.
While testifying before a House budget committee, Bernanke itemized the list of challenges facing the economy — a deep downturn in housing, rising unemployment, and turmoil at large banks and financial companies — and said the outlook for economic growth over the next year has weakened, the Washington Post reported.
The Fed chief said efforts that involve “putting money into the hands of households and firms that would spend it in the near term” would be more effective than other provisions, such as making President Bush’s tax cut permanent.
“Again, I’m not taking a view one way or the other on the desirability of those long-term tax cuts being made permanent,” he said.
While the Fed has moved on its own to cut interest rates and ensure that banks have adequate money to lend to businesses and each other, Bernanke said measures that put cash into the hands of businesses and consumers over the next year could also help.
Although Republicans and Democrats differ over what provisions should be included in any economic stimulus package, there is widespread agreement that tax rebates along the lines of the $300-$600 checks distributed around the time of the country’s last recession in 2001 are likely to be part of the measure.
“To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so,” Bernanke told lawmakers.
While shying away from endorsing a specific plan, Bernanke made clear his support for the general concept of an economic rescue package and that it be temporary so that it won’t complicate longer-term fiscal challenges.
At the White House early Thursday, spokesman Tony Fratto said, “The president does believe that over the short term, that to deal with this softening in the economy, that some boost is necessary.” That marked the first White House confirmation that Bush, confronting a deepening economic crisis that has shaken much of the nation, supports government intervention. Until now, the White House said the president was just considering some type of short-term boost.
House Speaker Nancy Pelosi, D-Calif., who was scheduled to take part in a conference call Thursday with Mr. Bush on the matter, said: “We have to spend the money, invest the resources, give the tax relief in a way that again injects demand into the economy, puts it in the hands of those who need it most and into the middle class … so that we can create jobs.”
On Wednesday, Pelosi and Republican leader John Boehner of Ohio promised to craft legislation to energize the weakening economy.