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US economy needs stimulus: Bernanke

Economists have said the US is probably slipping into a recession

(WASHINGTON) Federal Reserve chairman Ben Bernanke feels that some economic stimulus is needed, a Democratic aide to US House Speaker Nancy Pelosi said.

Ms Pelosi and Mr Bernanke met at the US Capitol on Monday as President George W Bush and congressional Democrats are considering ways to stimulate an economy that some economists say may be heading toward a recession. Fed spokeswoman Michelle Smith had no comment.

The Democratic aide said Mr Bernanke wasn’t specific about what form of stimulus he would support.

Democrats plan a stimulus package of about US$100 billion, Representative Barney Frank, the chairman of the House Financial Services Committee, said in an interview.

Ms Pelosi said in a written statement after the 30- minute meeting that a stimulus package should be coordinated with Federal Reserve action to stabilise the economy.

‘I hope that we can work together – recognising the independence of the Fed – and coordinate monetary and fiscal policy that will soften the blow for hardworking families affected by an economic slowdown,’ Ms Pelosi said.

Mr Bernanke declined to comment to reporters about the meeting.

A Labor Department report this month showed the nation’s unemployment rate jumped to 5 per cent in December from 4.7 per cent.

Economists at Goldman Sachs Group, Merrill Lynch and Morgan Stanley have said the US is probably slipping into a recession.

Ms Pelosi, a California Democrat, said she is seeking an accord that can get Republican support in Congress.

‘We hope to work in a bipartisan way for an initiative that is targeted, that is timely and is temporary,’ Ms Pelosi told reporters before meeting with the Fed chairman.

Mr Bush is weighing a tax rebate targeted at low- and middle-income Americans, according to a government official. Mr Bush probably will announce the plan in his Jan 28 State of the Union speech.

Democratic leaders in Congress are designing their own package, which may include public works spending, aid for the poor and a tax rebate.

House Minority Leader John Boehner, an Ohio Republican, signalled Republican opposition to any efforts to offset stimulus legislation with any tax increases.

Mr Boehner released a statement saying, ‘I hope that today’s meeting between Speaker Pelosi and chairman Bernanke is a sign that Democratic leaders are prepared to abandon their plans to raise taxes on middle-class families to bankroll their agenda of pork and bigger government.’

Mr Bernanke has agreed to meet with all House Democrats at an annual retreat in Williamsburg, Virginia, from Jan 30-Feb 1, said Sarah Feinberg, a spokeswoman for the House Democratic Caucus.

 

Source: Bloomberg (Business Times 16 Jan 08)

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