More signs of economic recovery regime


Richard Moore

January 17, 2008

Bernanke Is Said to Support Stimulus Measures

WASHINGTON ‹ Ben S. Bernanke, chairman of the Federal Reserve, has told 
lawmakers that he can support tax cuts or spending measures to stimulate the 
economy, even if they increase the budget deficit, provided the measures are 
quick and temporary.

Mr. Bernanke is to testify before the House Budget Committee Thursday. 
Democratic lawmakers said he had told them that he would not comment on 
proposals to link a stimulus package with a permanent extension of President 
Bush¹s tax cuts. That is expected to disappoint Republicans who favor such a 

Faced with growing evidence that the economy is slipping into a recession, 
Congressional Democrats and President Bush are trying to come up with a package 
that would put more money in Americans¹ hands within the next few months.

The Fed¹s willingness to give a nod to fiscal stimulus is important. Many 
lawmakers will not support action without the chairman¹s blessing, and the 
double dose of stimulus that the Fed and Congress are considering must be 
carefully calibrated.

If Mr. Bernanke opposed Congressional action on the ground that spending 
increases and tax cuts would increase the budget deficit, the Fed might restrain
its own effort to stimulate the economy with lower interest rates.

Mr. Bernanke wants to keep the Fed out of political jockeying, but he is also 
wary of endorsing measures that could aggravate the government¹s long-term 
fiscal problems. Unlike his predecessor, Alan Greenspan, Mr. Bernanke has 
generally refused to insert himself into the particulars of partisan battles 
over specific tax and spending proposals. Mr. Greenspan was often criticized for
endorsing Mr. Bush¹s tax cuts of 2001, which contributed to ballooning deficits 
for several years.

Democratic lawmakers who have spoken with Mr. Bernanke said he would not endorse
any specific plan but supported the general idea of propping up consumer 
spending and investment with temporary tax or spending measures.

Senator Charles E. Schumer, Democrat of New York and chairman of the Joint 
Economic Committee, said Mr. Bernanke was ³generally supportive² of a stimulus 
package as long as it was well conceived. ³He said that while he wasn¹t going to
endorse a specific plan, if an economic stimulus package was properly designed 
and enacted so that it enters the economy quickly, it could have a very positive
effect,² Mr. Schumer said.

Mr. Bernanke acknowledged last week that economic conditions had worsened and 
strongly suggested that the Federal Reserve would reduce the benchmark interest 
rate at the meeting of its Federal Open Market Committee on Jan. 30. On Wall 
Street, investors are betting that the central bank will reduce overnight 
lending rates to 3.75 percent from 4.25 percent.

On Wednesday, the central bank released its so-called beige book, a compilation 
of anecdotal reports from the Fed¹s 12 regional banks, and it stated that 
economic growth slowed noticeably in November and December.

The report said that holiday-season retail sales were ³generally disappointing.²
Seven of the 12 Fed districts reported a ³slight increase in economic activity,²
two described conditions as ³mixed² and three reported slowdowns.

The Fed chairman met privately on Monday with the House speaker, Nancy Pelosi of
California. In that meeting, according to Congressional officials, Mr. Bernanke 
neither urged Congress to enact an emergency measure nor signaled any 

While declining to discuss details, Ms. Pelosi said, ³I am encouraged by my 
conversations with the administration and the Fed, which is separate and 
independent, that there is a sense of urgency, that there is a need for a 
stimulus package and we should find our common ground as soon as possible.²

The Fed chairman was said by others to have echoed the concept if not the 
precise words of economists like Lawrence H. Summers, Treasury secretary under 
President Bill Clinton, who have called for any plan to be ³timely, targeted and

Democratic lawmakers generally favor measures aimed at low- and middle-income 
families, arguing they need the extra money most acutely and are most likely to 
spend it immediately. Though Democrats are weighing a variety of measures, a 
consensus appears to be building that the package should cost about $100 

Among the proposals circulating among Democrats are one-time tax rebates to 
almost all workers; temporary increases in unemployment benefits, food stamps 
and Medicaid payments; and federal grants to state and local governments. Some 
Democrats are pushing for increased spending on public infrastructure like 
highways and bridges, but aides to Ms. Pelosi said that issue might be dealt 
with separately to avoid slowing down any stimulus package.

Administration officials and many Republican lawmakers were open to tax rebates,
but many want to include temporary business tax breaks, like an investment tax 
credit or permanent reductions in the corporate rate.

The House Democratic and Republican leaders met Wednesday and emerged promising 
to work together on a stimulus plan. Congressional leaders are to meet with Mr. 
Bush next Tuesday.

On Wednesday, Michael O. Leavitt, the secretary of health and human services, 
rejected a proposal favored by many Democrats to have the federal government pay
a larger share of the cost of Medicaid, the health program for low-income people
that is financed jointly with the states.

He said that increasing the federal share of Medicaid could be a means of 
increasing federal control over health care, a change opposed by the White 

³I don¹t think that Medicare and Medicaid were intended as jobs programs,² Mr. 
Leavitt said. ³They were intended to help those with serious economic 

One precedent for this proposal was the 2003 tax cut law, which provided $20 
billion in ³temporary fiscal relief² to states. Half of the money was to avert 
cuts in Medicaid programs.

Mr. Bush and his advisers have been pushing for years to make his 2001 and 2003 
tax cuts permanent. Many economists argue that making the tax cuts permanent 
would have no immediate effect on the economy, because they are not scheduled to
expire until the end of 2010. But supporters say the move could provide a 
short-term lift because investors would have greater certainty about tax policy 
in the future.

Mr. Bernanke, who was a Fed governor and then chairman of Mr. Bush¹s Council of 
Economic Advisers before becoming Fed chairman, is expected to rebuff efforts by
Republicans or Democrats to draw him into that battle. Since becoming Fed 
chairman in February 2006, Mr. Bernanke has generally refused to comment on 
specific tax and spending proposals unless they had a direct bearing on the 
overall economy.

³If he gets peppered on these issues, my guess is that he will duck,² said Brian
A. Bethune, an economist at Global Insight, an economic forecasting firm.

Mr. Bernanke is expected to warn lawmakers Thursday that the nation faces severe
budget problems in the decades ahead as more than 70 million baby boomers reach 
retirement age.

He has long made it clear that there are times when it makes sense for the 
federal government to run higher deficits to head off an economic downturn.

³In the short run, fiscal policy makers may have important and legitimate 
reasons to depart from budget balance, sometimes even substantially,² Mr. 
Bernanke said in a speech in 2003, when he was a Fed governor. Those reasons, he
continued, could include a national emergency or ³a stimulus package to assist 
economic recovery.²

Copyright 2008 The New York Times Company

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