Bernanke backs temporary fiscal package to stimulate economy

U.S. Federal Reserve Chairman Ben Bernanke speaks at a joint Economic Committee hearing about the economy on Capitol Hill in Washington, Nov. 8, 2007. (Xinhua/Reuters File Photo)

U.S. Federal Reserve Chairman backed on Thursday calls for a fiscal package to stimulate economy, but stressed such a plan should be "explicitly temporary."

"Any program should be explicitly temporary, both to avoid unwanted stimulus beyond the near-term horizon and, importantly, to preclude an increase in the federal government's structural budget deficit," said Bernanke in testimony to the House Budget Committee.

He said that the nation faces daunting long-run budget challenges associated with an aging population, rising health-care costs, and other factors.

A fiscal program that increased the structural budget deficit would only make confronting those challenges more difficult, he said.

"Fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone," the Fed chief admitted.

But he did not embrace any specific provisions or a specific plan. An economic rescue package usually includes tax rebates.

"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 twelve months or so, he said.

Stimulus that comes too late will not help support economic activity in the near term, and it could be actively destabilizing if it comes at a time when growth is already improving, he noted.

The Fed chief's remarks came as odds of a recession increased due to a severe housing slump and a persistent credit crunch.

To bolster economic growth, the central bank has cut interest rates for consecutive three times by combined one percentage points and injected a huge amount of money into the banking system.