Bernanke Pushes Economic Stimulus Plan

The Federal Reserve chairman sent a strong signal that the Fed will approve another interest rate cut. He endorsed a stimulus package and said that lawmakers' efforts need to be put into effect quickly.

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ALEX COHEN, host:

From the studios of NPR West, this is DAY TO DAY. I'm Alex Cohen. In a few minutes, we'll hear from my colleague, Alex Chadwick. He is in Nevada right now. That's where Republicans and Democrats will caucus on Saturday. We'll hear why Nevada matters in the race for the White House.

But first, we go to Capitol Hill and one of the biggest issues for voters in this year's election, the economy. Today that topic was front and center before the House Budget Committee.

Mr. BEN BERNANKE (Federal Reserve Chairman): On the whole, despite improvements in some areas, the financial situation remains fragile and many funding markets remain impaired. Adverse economic or financial news thus has the potential to increase financial strains and to lead to further constraints on the supply of credit to households and businesses.

COHEN: That's Federal Reserve Chairman Ben Bernanke on the Hill today delivering his assessment of the U.S. economy. His view, as expected, was bleak; so are the numbers that came out earlier this morning. Housing starts last year were down nearly 25 percent from 2006. That's the second biggest annual decline on record. Bernanke told the House Committee he would back an economic stimulus package to bolster the weak economy and avert a possible recession.

Mr. BERNANKE: A number of analysts have raised the possibility that fiscal policy actions might usefully complement monetary policy in supporting economic growth over the next year or so. I agree that fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone. But the design and implementation of the fiscal program are critically important. A fiscal initiative at this juncture could prove quite counterproductive, if for example it provided economic stimulus at the wrong time or compromised fiscal discipline in the longer term.

COHEN: Bernanke said he wouldn't endorse a plan. Later in the program, we'll talk about the possible options with Nancy Marshall-Genzer of the business show MARKETPLACE.

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Lawmakers Clash on Economic Help

House Speaker Nancy Pelosi and House Minority Leader John Boehner i i

hide captionHouse Speaker Nancy Pelosi (D-CA) and House Minority Leader John Boehner (R-OH) met Wednesday to discuss the economy.

Chip Somodevilla/Getty Images
House Speaker Nancy Pelosi and House Minority Leader John Boehner

House Speaker Nancy Pelosi (D-CA) met with GOP leaders to present a united front on the need to help the economy.

Chip Somodevilla/Getty Images
Options for Jumpstarting the Economy

Amid signs of a potential recession, President Bush and congressional lawmakers are weighing how to give the economy a nudge. Read a summary of proposals.

Maybe it's some leftover holiday spirit. Or perhaps it's polls showing most Americans take a dim view of the partisan gridlock in Washington. Whatever the case, in these early days of the second session of the 110th Congress, talk of bipartisanship abounds.

Congress recently came back to work in Washington, and while lawmakers seem to agree that an economic recession looms around the corner, the parties are split on what to do about it.

Democrats say a stimulus package could be on the president's desk in as few as 30 days.

"I think nothing would restore more confidence in the American people than if we could come up with a bipartisan initiative right away that says we are working together," said House Speaker Nancy Pelosi (D-CA).

Pelosi met with GOP House leaders on Wednesday to present a united front on the urgency of the problem. House Minority Leader John Boehner (R-OH) spoke to reporters afterward.

"There's no question there's a threat to the economy, and so there is an agreement that we will work together on a package that truly is stimulative that will happen quickly, and those conversations are going to continue in the coming days," Boehner said.

But the devil is in the details, and while the two parties agree that something should be done, they're not close to agreeing on what. Democrats tend to favor some direct cash infusions to low- and middle-income Americans in the form of tax rebates, by extending jobless benefits for those out of work, and by making food stamps more available.

Their mantra is that a stimulus program be targeted, timely and temporary.

"Direct injections of cash into the economy, through both immediate consumer and government spending, are the shots in the arm needed to ward off a recession," said Sen. Charles Schumer (D-NY). "In fact, many, many economists believe that spending stimuli have a greater immediate effect on the economy than tax cuts."

The Senate Joint Economic Committee — which Schumer chairs — heard testimony on Wednesday from a panel of economists. Former Treasury Secretary Lawrence Summers said any stimulus package should add up to $75 billion to $100 billion — and maybe twice that.

"Economic cooling is a much greater risk today than economic overheating. There is sufficient weakness in the economy now to justify stimulus legislation that will take effect as rapidly as possible," Summers said.

Democrats favor stimulating the economy by putting cash in the hands of consumers, and some Republicans agree. Other Republicans believe the solution lies in cutting taxes. There have been calls to extend President Bush's tax cuts, which are set to expire in 2010. And a group of conservative House Republicans have proposed cutting the corporate income tax rate from 35 percent to 25 percent.

"Perhaps one thing we agree on in Congress is that a stimulus package is needed. But we think it is more important to stimulate paychecks than stimulate welfare checks," said Rep. Jeb Hensarling (R-TX).

Nothing is likely to be settled until President Bush weighs in. He's meeting with congressional leaders next week, and it may become clearer whether Congress and the White House can truly put aside their partisan differences.

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