Recession Watch: Bernanke and Bush on Speed, Stimulus, and Slowdowns

The White House and Fed chairman both back a quick, temporary boost for the economy.

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The White House and the Federal Reserve now agree the economy could use some extra help—and fast.

Federal Reserve Chairman Ben Bernanke told the House Budget Committee today that an "explicitly temporary" stimulus package could help shore up an increasingly troubled economy. He stressed that any stimulus package be "structured so that its effects on aggregate spending are felt as much as possible in the next 12 months."

Hours earlier, Bush administration spokesman Tony Fratto said "some boost is necessary" in the short term.

Further details are sketchy, but various plans are estimated to cost around $100 billion.

Tax rebates are a likely result, possibly including a repeat of the $300 to $600 checks doled out to taxpayers during the last recession in 2001. On Wednesday, Sen. Hillary Clinton unveiled her plan to help mainly lower-income Americans struggling with the slowing economy and rising mortgage rates, including Democratic favorites such as extended unemployment benefits. GOP plans favor tax breaks for businesses to spur consumer spending.

Bernanke said he remains convinced that the United States can avoid a recession and cautioned that any stimulus package could destabilize the economy if it continued beyond the worst of the slowdown. He warned that aggressive long-term spending must be tempered by the "daunting long-run budget challenges associated with an aging population, rising healthcare costs, and other factors."

His testimony also fell short of advocating Republican-backed plans to make the Bush administration's tax cuts permanent, which Democrats oppose.

Meanwhile, trouble in the economy just keeps on coming, with new data showing problems in the factory sector and dismal housing activity that remains the chief culprit in this slowdown.

The Philadelphia Fed factory index plummeted to -20.9 in January from a -1 in December.

Housing starts are the weakest in 16 years after plunging 14 percent in December. Sandra Pianalto, the Cleveland Fed president, said today that the residential housing market "still appears to be in free fall."

The new data come amid rising unemployment, decreasing retail sales, and manufacturing activity that has slowed to a crawl. Plans for increased government spending also are a trade-off amid rising price pressures. If anything, a stimulus package might spur inflation, which is already at a 17-year high.

TAGS:
recession
economy
Bernanke, Ben
Federal Reserve
Bush, George W.
  • Kirk Shinkle

    Kirk Shinkle is a senior editor for U.S. News Money and manages the Best Funds portal. Follow him on Twitter @KirkS or email him at kshinkle@usnews.com.