Bernanke cautious over economic recovery

The head of America’s Federal Reserve warned today that the country’s economy would remain shaky for months to come.

Ben Bernanke told Congress that a fresh round of government economic stimulus was a good idea.

His remarks marked his first endorsement of another round of energising stimulus to follow the midyear tax rebates.

Congressional Democrats have been pushing a stimulus, but the Bush administration has been cool to the notion.

“With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate,” he said.

A trio of hard blows from the housing, credit and financial crises has pounded the economy badly.

Many analysts predict the economy will shrink late this year and early next, which would meet the classic definition of a recession. Some believe the economy already jolted into reverse during the July-to-September quarter.

The nation’s unemployment rate, now at 6.1%, could hit 7.5% or higher by next year, according to some predictions.

Mr Bernanke suggested that Congress design the stimulus package so that it would be timely and well-targeted and would limit the longer-term affects on the government’s budget deficit, which hit a record high in the recently ended budget year.

Any stimulus package would need to kick in quickly to entice people and businesses to boost spending and buck up the economy during the period in which economic activity would be otherwise weak, he said.

He added that the package should also should include provisions that would help break through the stubborn credit clog that is playing a major role in the economy’s slowdown.

Mr Bernanke’s nod for another round of stimulus comes with the knowledge that a flurry of drastic actions by the Federal Reserve and the Bush administration has yet to unlock lending and calm financial markets.