US Fed chairman backs bigger stimulus package

Washington/London: Federal Reserve Chairman Ben Bernanke on Monday endorsed consideration of a fiscal stimulus package, citing the chance of a "protracted slowdown" and a "weak" outlook for the US economy into next year.

Lawmakers "should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers", Bernanke said in testimony to the House Budget Committee.

"Such actions might be particularly effective at promoting economic growth and job creation," he said, calling consideration of a stimulus "appropriate".

"The pace of economic activity is likely to be below that of its longer-run potential for several quarters," Bernanke said in his testimony. "The slowing in spending and activity spans most major sectors."

US regulators last week announced fresh efforts to jump-start lending. The Treasury committed $250 billion (Dh917.5 billion) in taxpayer funds to private banks and the Federal Deposit Insurance Corp. extended its insurance to include new debt sold by banks.

The actions "should help rebuild confidence in the financial system," Bernanke said. While the rescue legislation was "critical" for helping to contain "damage to the broader economy," stabilising the financial system "will not quickly eliminate the challenges still faced by the broader economy", he said.

The US dollar extended gains versus the yen yesterday.

The dollar was last up 0.2 per cent at 101.83 yen, versus 101.69 yen before Bernanke's testimony. The euro last traded down 0.5 per cent at $1.3346, compared to $1.3360 before Bernanke's speech.

"With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by Congress at this juncture seems appropriate," Bernanke said in prepared remarks for delivery to the congressional panel.

Meanwhile, oil rose on Monday, supported by expectations Opec may cut output this week to boost prices that have fallen more than 50 per cent in just three months from a record high above $147 a barrel.

Gains in European and US stock markets on signs of the credit crunch might be easing also helped underpin oil.