No specifics yet, but package is likely to include tax rebates
(WASHINGTON) US President George W Bush and Federal Reserve chairman Ben Bernanke yesterday embraced calls for an economic stimulus package to avert recession. Mr Bernanke said that such a plan should be quickly implemented and temporary so that it will not complicate longer-term fiscal challenges.
The Fed chief, in a testimony prepared for the House Budget Committee, did not embrace any specific provisions or a specific plan. Rather, he spoke to the general concept of an economic rescue package. It is likely that any such package would include tax rebates.
‘Fiscal action could be helpful in principle’ and may provide ‘broader support for the economy’ than the Fed can furnish alone through reductions in interest rates, Mr Bernanke said in a prepared testimony to the House Budget Committee. However, ‘the design and implementation of the fiscal programme are critically important’, he said.
The Fed chief said that a fiscal package could also ‘prove quite counterproductive’ if the stimulus arrived at the ‘wrong time or compromised fiscal discipline in the longer term’. Mr Bernanke reiterated that the outlook for growth in 2008 ‘has worsened’ and ‘the downside risks to growth have become more pronounced’.
Central bankers and administration officials are trying to prevent the economy from sinking into the first recession since 2001. Retail sales fell last month, unemployment rose, and housing markets are mired in the worst slump in 16 years.
Mr Bernanke noted that banks are trying to protect asset quality and funding, and tightening credit conditions for the rest of the economy as a result.
‘The president does believe that over the short term, to deal with the softening of the economy, that some boost is necessary,’ Mr Bush’s spokesman Tony Fratto said.
Mr Fratto’s comments marked the first White House confirmation that Mr Bush, confronting a deepening economic crisis that has shaken much of the nation, supports government intervention. Until now, the White House has said that the president was just considering some type of short-term boost.
Mr Fratto would not divulge the details of what the stimulus would look like, other than to say that all options are being considered.
Mr Bernanke had already indicated earlier that he was open to efforts to develop a rescue package, and reinforced that position yesterday.
The fragile state of the economy has gripped Wall Street and Main Street and is a rising concern among voters. The situation has galvanised politicians – including those vying to be the next president – and poses the biggest test to Mr Bernanke, who took over the Fed nearly two years ago.
With the economy suffering, one of Mr Bush’s first acts after returning to Washington on Wednesday evening from the Middle East was to hold a conference call yesterday with congressional leaders in both parties to discuss a possible short-term stimulus package.
The White House spoke up after watching a number of indicators of a battered economy. Consumer confidence has plummeted, economic woes have become the top concern of the American public, and the 2008 presidential contenders have scrambled to get in front of the issue.
Mr Fratto said that Mr Bush made the decision that a stimulus was needed while he was away from Washington on the Middle East trip.
But Mr Fratto added that while Mr Bush has decided to pursue some sort of boost, he suggested that Mr Bush has not yet decided what he thinks it should contain. Listening to the congressional leaders’ ideas is one step in that process, he said, as is ‘probably daily conversations’ by Mr Bush’s economic team with people from the financial sector, business leaders and prominent economists, among others.
Mr Fratto declined to say when the president could announce a package, or whether it would be before or after the State of the Union address later this month.
An economic stimulus package, under consideration for weeks, will require congressional approval and would be Mr Bush’s first major effort to confront the broad economic slowdown beyond the steps taken to combat home foreclosures last year.
Source: AP, Bloomberg (Business Times 18 Jan 08)