Federal Reserve Chairman Ben Bernanke told a House panel on Monday that a second economic stimulus plan "seems appropriate" because the economy could remain weak through the first half of 2009.
His qualified endorsement of a stimulus bill will help Democrats make their case for a spending package that seeks to inject billions into the economy. Congressional Republicans and the White House have been dismissive of the idea.
Bernanke told members of the House Budget Committee on Monday that "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."
For example, during an exchange with Rep. Brian Baird (D-Wash.), Bernanke made the case that any infrastructure spending be directed to construction projects that would commence immediately, not for the long-term planning that often precedes this construction.
House Speaker Nancy Pelosi (D-Calif.) and other Democratic leaders are pushing a proposal that would inject more than $100 billion into the economy through an extension of unemployment benefits, more money for food stamps and federal funds for roads, bridges and other transportation projects. The package could also include a tax cut for middle-income households, but the price tag remains unknown.
The Federal Reserve chairman also recommended that Congress "should consider including measures to help improve access to credit by consumers, homebuyers, businesses, and other borrowers" as part of that broader package.
Bernanke told members of the Budget Committee that the stimulus bill should be focused as narrowly as possible to give the economy a boost through the early part of next year, "during the period in which economic activity would otherwise be expected to be weak.
"Any fiscal package should be well-targeted, in the sense of attempting to maximize the beneficial effects on spending and activity per dollar of increased federal expenditure or lost revenue," Bernanke said.
But he warned that "the Congress must be vigilant in ensuring that any allocated funds are used effectively and responsibly" and that lawmakers should "limit longer-term effects on the federal government’s structural budget deficit." Democrats in the House already differ with their presidential nominee, Illinois Sen. Barack Obama, over the need to pay for the tax cuts.
One Republican leadership aide in the House said Bernanke's comments would help Democrats corral support for the plan. "It likely will be helpful with a good portion of House Republicans," the aide said.