Page last updated at 21:47 GMT, Monday, 20 October 2008 22:47 UK

Bernanke supports higher spending

Ben Bernanke says the outlook for the US economy remains uncertain

US Federal Reserve chief Ben Bernanke has said more government spending may be needed to combat economic weakness.

A fresh round of stimulus would be a good idea, he told the US House of Representatives budget committee.

Although Mr Bernanke stopped short of saying the US was in recession, he said the American economy was now in a "very serious slowdown".

Hopes of a fresh economic stimulus package pleased investors, with the main Dow Jones index ending up 4.7%.

"Consideration of a fiscal package by the Congress at this juncture seems appropriate," said Mr Bernanke.

His comments were welcomed by Democratic leaders in Congress, who called on Republicans and the White House to work together to formulate a plan.

A White House spokesman said it would have to wait and see what Democrats, who control both halves of Congress, put forward.

'Serious consequences'

A series of crises in the housing, credit and financial sectors have badly hit the US economy.

"If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers
Ben Bernanke, Federal Reserve chairman

Many analysts are forecasting the US economy will shrink later this year and early next year. This would meet the classic definition of a recession - which is two quarters of negative growth.

However, some economists believe the economy is already in a recession, something that Mr Bernanke more than hinted at.

"We are in a very serious slowdown in the economy which has very serious consequences for the public," he said.

"Whether it's called a recession or not is of no consequence."

'Promoting growth'

In his speech before the committee, Mr Bernanke suggested that Congress should design a stimulus package so that it would be "timely and well-targeted".

He said it should limit the longer-term impact on the government's budget deficit, which hit a record high in the last financial year.

Any government spending would need to kick in quickly to encourage people and businesses to boost spending and help the economy during the period in which economic activity would be otherwise weak, he said.

The Federal Reserve chairman also said the package should include provisions that would aid the jammed credit markets, which has been a major factor in the economy's slowdown.

"If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers," he said.

"Such actions might be particularly effective at promoting economic growth and job creation," he added.

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