WASHINGTON (AFP) - Federal Reserve chairman Ben Bernanke on Thursday backed the idea of a temporary stimulus package to help lift up a sagging economy as the White House said an economic "boost" was needed.
Bernanke told the House of Representatives Budget Committee a program of between 50 billion and 150 billion dollars in stimulus would be "reasonable" to help an economy buffeted by its worst housing slump in decades.
The Fed chief indicated that a stimulus effort could complement the Fed's actions in slashing interest rates to offset the impact of housing and credit woes that according to some analysts could provoke a recession.
Separately, White House spokesman Tony Fratto said President George W. Bush supports calls for a stimulus package.
"The president does believe that over the short term, to deal with the softening of the economy, that some boost is necessary," Fratto told reporters without elaborating.
Bernanke said any stimulus should be temporary, in an apparent effort to discourage calls by the White House and some Republicans for permanent tax cuts.
Amid growing talk about tax measures to stimulate a flagging economy, Bernanke said, "I agree that fiscal action could be helpful in principle, as fiscal and monetary policy stimulus together may provide broader support for the economy than monetary policy actions alone."
But Bernanke said the design of a stimulus plan is critical, and said the best move would be swift action that is limited and targeted.
"To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so," Bernanke said in his remarks prepared for delivery.
"Stimulus that comes too late will not help support economic activity in the near term, and it could be actively destabilizing if it comes at a time when growth is already improving."
He said any program "should be explicitly temporary, both to avoid unwanted stimulus beyond the near-term horizon and, importantly, to preclude an increase in the federal government's structural budget deficit."
Asked by one lawmaker to elaborate, Bernanke said, "I think the evidence suggests that measures that involve putting money in the hands of households and firms that will spend it in the near term will be more effective."
Bernanke did not specifically address Republican efforts to make permanent many of the tax cuts enacted since Bush took office in 2001, including on capital gains and dividends.
"Not taking a view one way or the other on the desirability of those long-term tax cuts being made permanent, but I think they're part of a set of very important long-term issues on fiscal structure and stability that this committee and Congress needs to have," he said.
He also repeated his statement last week that the Fed is "ready to take substantive additional action as needed to support growth."
Many analysts said this suggested the Fed is likely to cut at least half a percentage point from its current federal funds interest rate of 4.25 percent at its policy meeting January 29-30.
House Speaker Nancy Pelosi said this week she hopes an economic stimulus package could be coordinated between Congress, the Fed and the White House.
Senator Hillary Clinton, who is among the leaders in the Democratic presidential race, is pressing for a 30-billion-dollar "emergency housing crisis fund" to help cities and states through an expected increase in home foreclosures.
Her main party rival, Democratic senator Barack Obama, has called for a 250-dollar tax credit to 150 million workers and Social Security recipients, and possibly another 250 dollars to both groups if employment continues to decline.
The latest comments came as data showed a steep 14.2 percent slide in US housing stats last month, capping a horrific year for housing. A separate report showed a steep decline in regional manufacturing as measured by the Philadelphia Fed.
"The huge slowdown in manufacturing activity does not bode well for an economy trying to stay afloat," said Joel Naroff at Naroff Economic Advisors.
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