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Fed boss backs economic stimulus Fed boss backs economy kick start
(about 1 hour later)
Federal Reserve chairman Ben Bernanke has backed the introduction of certain tax or spending policies to help the flagging US economy avoid a recession. Federal Reserve chairman Ben Bernanke has backed the introduction of emergency economic measures aimed at helping the US economy avoid recession.
In testimony before the House of Congress, he said this would be helpful and also suggested the possibility of further interest rate cuts. Testifying to the House of Congress, he said that any measures such as tax cuts should be implemented quickly, and on a temporary basis, to be most effective.
But he urged US lawmakers that if such measures were adopted, they needed to work quickly and be temporary. Mr Bernanke also hinted that the Fed may be willing to cut interest rates.
He refused to be drawn on identifying specific policy measures. However, Mr Bernanke warned that any stimulus plan should not compromise the economy's longer-term stability.
The Federal Reserve has cut interest rates three times since the summer, most recently in December, and US rates now stand at 4.25%. "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," Mr Bernanke said.
During his speech, Mr Bernanke reiterated that the Fed was prepared to take "substantive action" to promote economic growth and adequately insure the US economy against downside risks. "Stimulus that comes too late will not help support economic activity in the near term, and it could be actively destabilising if it comes at a time when growth is already improving," he warned.
'Substantive action'
Mr Bernanke's comments come as banks, including Wall Street giants Merrill Lynch and Citigroup, reel from losses linked to the US housing market.
Many observers have warned that the US economy is on a knife edge, even though the Fed has cut interest rates three times since last summer, bringing its main borrowing cost down to 4.25%.
The situation is looking so bad, that many analysts are now predicting that the Fed will have to cut interest rates a number of times this year if it is to stave off a recession.
During his speech, Mr Bernanke reiterated comments he made last week that the Fed was prepared to take "substantive action" to promote economic growth and adequately insure the US economy against downside risks.
To this end, he said the Fed would cut interest rates further "if necessary".To this end, he said the Fed would cut interest rates further "if necessary".
But he was also keen to emphasise the Fed's role in controlling inflation, which has risen recently because of higher energy costs and food prices. But he was also keen to emphasise the need for the Fed to maintain its credibility in keeping inflation under control.
Inflation has spiralled recently on higher energy and food costs. Government data out earlier in the week showed inflation rising by 4.1% in 2007, the fastest rate for 17 years.
Mr Bernanke said the last few months had been "challenging" trying to deal with the threats of a cooling housing market and slower consumer spending, and rising inflation.
But over the coming year he said inflation should ease and prices stabilise.