Despite declines in oil and commodity prices, there will be no quick economic turnaround, according to Federal Reserve Board chairman Ben S. Bernanke, who warned Congress yesterday there will be “several quarters” of below-trend growth.

“One brighter note is that the declines in the prices of oil and other commodities will have favorable implications for the purchasing power of households,” Bernanke said, according to prepared text of his testimony before the House Committee on the Budget, released by the Fed. “Nonetheless, the pace of economic activity is likely to be below that of its longer-run potential for several quarters.”

The accommodative monetary policy, as well as improvements made in the credit markets, “are likely to promote the return of solid gains in economic activity and employment in the context of low and stable inflation,” Bernanke said, noting that the timing of a recovery will depend on how fast the “financial and credit markets return to more-normal functioning.”

He noted, “Because the time that will be needed for financial normalization and the effects of ongoing credit problems on the broader economy are difficult to judge, the uncertainty currently surrounding the economic outlook is unusually large.”

A second fiscal stimulus package “seems appropriate,” Bernanke said, but he cautioned of trade-offs, which “inevitably involve value judgments that can properly be made only by our elected officials. Moreover, with the outlook exceptionally uncertain, the optimal timing, scale, and composition of any fiscal package are unclear.”

Also, Bernanke suggested, a “package should be structured so that its peak effects on aggregate spending and economic activity are felt when they are most needed, namely, during the period in which economic activity would otherwise be expected to be weak,” with an eye on maximizing “the beneficial effects on spending and activity per dollar of increased federal expenditure or lost revenue,” and limiting any long-term effects on the federal budget deficit.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.