Additional policy easing may be needed, Federal Reserve Board chairman Ben S. Bernanke told Congress yesterday, and the Federal Open Market Committee will “stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.”
But given the changing conditions of an economy, Bernanke said: “The FOMC must remain exceptionally alert and flexible, prepared to act in a decisive and timely manner and, in particular, to counter any adverse dynamics that might threaten economic or financial stability.”
Fiscal policy, complementing monetary policy, could help the economy if “the design and implementation” are timed properly Bernanke said in testimony before the House Committee on the Budget, according to text of the speech released by the Fed. “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.”
He said the effects of fiscal stimulus should be felt most in the coming year. “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,” Bernanke said. “Thus, fiscal measures that involve long lead times or result in additional economic activity only over a protracted period, whatever their intrinsic merits might be, will not provide stimulus when it is most needed.”
