US Fed chief backs stimulus plan

Support comes as President Bush plans speech to unveil steps to ward off recession.

    Bernanke told congressmen that stimulus measures must be implemented quickly [Reuters]

    With some economists warning of a recession, US legislators from both political parties want to fire up the economy.
     
    For his part, the US president is putting together his first public call for a stimulus bill while negotiations in congress focus on rebates for taxpayers and other steps.
     
    George Bush planned to lay out his position on Friday.
     
    Tax rebates
     
    Under the White House plan, taxpayers could receive rebates of up to $800 for individuals and $1,600 for married couples.
     
    US legislators are considering smaller rebate cheques and more money for food programmes and the unemployed.
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    Bush says he favours income tax rebates for people and tax breaks for business investment.

    The challenge for members of the congress now is to find a balance between helping business, and helping consumers, and especially the middle class.

    Many Americans worry that the $100bn stimulus plan will create more problems than it will solve.

    'Critically important'
     
    Bernanke tried to reassure them, saying it was "critically important" that any fiscal measures be designed to take effect quickly.
     
    He said the stimulus plan must be temporary and implemented quickly - so that its economic effects could be felt as much as possible within the next 12 months.

    Financial firms like Merrill Lynch have posted
    huge losses due to the sub-prime crisis [EPA]

    "Putting money into the hands of households and firms that would spend it in the near term" is a priority, Bernanke said.
     
    He and other members of the Federal Reserve have tried to boost growth by cutting interest rates by one per cent since September.
     
    A further cut is expected later this month.
     
    For now, Bernanke is hopeful. "We are not forecasting recession but, rather, at this point, slow growth," he told congressmen.
     
    Still, the toll of the housing and credit debacles will be felt into early next year, he said.
     
    Default fallout
     
    Hundreds of thousands of US homeowners have defaulted on loans given out with little or no down payment, causing wider panic on the financial markets that businesses use.
     
    This crisis has been compounded by higher unemployment rates, rising food prices and oil at around $100 a barrel.
     
    Meanwhile, stock markets across the world have been falling heavily on concerns that worse is still to to come.
     
    Bernanke's comments, coupled with news of a hefty loss at Merrill Lynch and a plunge in regional factory activity, further clouded an increasingly dire view of the economy.
     
    Huge losses
     
    Other banks, including Citigroup, UBS and Morgan Stanley, have also posted huge losses due to the sub-prime crisis.
     
    US stocks closing sharply lower on Thursday, with the benchmark S&P 500 plummeting to a 15-month low.
     

    The Dow Jones industrial average fell 306.95 points, or 2.46 per cent, to close at 12,159.21, down more than 1,000 points since the beginning of 2008.

     

    The Standard & Poor's 500 Index was down 39.95 points, or 2.91 per cent, at 1,333.25.

     

    The Nasdaq Composite Index was down 47.69 points, or 1.99 per cent, at 2,346.90.

    SOURCE: Al Jazeera and agencies


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