Bernanke, White House move toward economic stimulus package

I listened to Bernanke's testimony on the Hill today and here are some of the key points that were made:

  • Bernanke and Bush have called for an economic stimulus package in an attempt to avoid recession.
  • Bernanke mentioned that fiscal action “could be helpful” in giving “broader support for the economy” than a reduction in interest rates alone. Further, he mentioned that “putting money into the hands of households and firms would be more effective” than provisions such as a permanent tax cut.

While no specific provisions were advocated, Bernanke showed clear support to the general concept of an economic package to boost the economy.

The White House admitted that “some boost is necessary” to deal with this economic downturn, accepting for the first time that intervention is needed.

House Speaker Nancy Pelosi met with congressional leaders to create legislation in order to “energize the weakening economy.”

Upon his return from the Middle East, President Bush called for a conference call with congressional leaders to discuss the possibility of an economic stimulus package. 

Bernanke has signaled his intentions to cut interest rates by .5%, but noted that a package containing fiscal policies should be implemented “quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months.”

Bernanke made clear that if such actions are not made in a timely, direct, and temporary fashion, they would be ineffective, if not detrimental. He warns that a fiscal policy which increases the budget deficit will make confronting the challenges of an aging population and health care, among other factors, more difficult.

Brian Blackstone's Wall Street Journal and Jeannine Aversa's Associated Press articles provide further detail into this issue.