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Last Updated: Thursday, 17 January 2008, 21:38 GMT
Fed boss backs economy kick-start
Ben Bernanke
Mr Bernanke has to keep the US economy on an even keel
Federal Reserve chairman Ben Bernanke has backed the introduction of emergency measures aimed at helping the US economy avoid recession.

Speaking to the House Budget Committee Mr Bernanke said that any measures such as tax cuts should happen quickly, and on a temporary basis to be effective.

President George W Bush will outline a programme to boost the fragile US economy on Friday, his spokesman said.

Mr Bernanke also hinted that the Fed may be willing to cut interest rates.

Mr Bush will give details of the proposals in a speech expected around noon (1700 GMT) on Friday although he is unlikely to provide exact dollar figures.

He will "let the American people know that he does believe that short-term temporary measures are needed to help the economy through this period," White House spokesman Tony Fratto said.

The president and US Treasury Secretary Henry Paulson discussed the plan during a conference call on Thursday with top congressional leaders.

Warning

However, Mr Bernanke warned that any stimulus plan should not compromise the economy's longer-term stability.

"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.

"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.

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.

Rate hints

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".

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.

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