Federal Reserve Chairman Ben Bernanke threw his support behind efforts to craft a fiscal stimulus package today and repeated that the US central bank was ready to act aggressively to counter recession risks.
"Fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary actions alone," Bernanke said in remarks to the US House of Representatives Budget Committee.
But he specified that it was "critically important" that any fiscal measures be designed to kick in quickly and deliver their maximum impact within the next 12 months. Any other effect could do more harm than good, Bernanke warned.
The Bush administration and lawmakers on Capitol Hill have begun to consider what steps might be appropriate to prop up an economy many fear is on the verge of recession.
The Fed chief echoed a bleak assessment on the economy's health he delivered last week that was widely seen as a signal the US central bank would slash benchmark US interest rates by a hefty half-percentage point at month's end.
"Recently, incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and that the downside risks to growth have become more pronounced," Bernanke warned. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.
The US central bank has already cut benchmark overnight borrowing costs by 1 percentage point to 4.25 per cent since mid-September. Fed policy-makers next meet on January 29-30.