Federal Reserve Chairman Ben Bernanke Testifies to the House Budget Committee

Moreover, Bernanke stated that 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 surrounding the economic outlook is unusually large. The silver lining is that commodity prices have declined sharply and inflation expectations have eased. Thus, inflation should come down to levels consistent with price stability.

In view of the very weak economic outlook, and some risk of a protracted slowdown, Bernanke stated that the consideration of a second fiscal stimulus package by Congress would be appropriate—effectively giving Congress a green light. In addition, Bernanke is recommending that the measures should help improve access to credit by consumers, homebuyers, businesses, and other borrowers. However, the measures should be designed to limit the impact on the federal government's structural budget deficit.

Global Insight had already incorporated a second fiscal stimulus package for fiscal 2009 in its October outlook. That assumed package included higher federal spending on infrastructure spending, healthcare costs, and income security. With the guidance provided by Bernanke today, the anticipated fiscal package from Congress will likely be expanded further to include measures that support improved access to credit.