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Fed Chair Urges Congress To Pass Stimulus Quickly

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By NEIL IRWIN and JONATHAN WEISMAN, The Washington Post

Published: January 18, 2008

WASHINGTON - Federal Reserve chairman Ben Bernanke endorsed government efforts to stimulate the economy Thursday, as congressional leaders and the Bush administration moved closer to agreement on a plan.

President Bush planned to lay out principles behind his preferred stimulus today. The leading ideas within the administration are to give rebates of up to $800 to each taxpayer and introduce tax incentives for business investment, but administration officials said no decision has been made on exact plans to try to prevent a recession.

House Speaker Nancy Pelosi, D-Calif., said Congress will have a package ready for action by the president's State of the Union address on Jan. 28, and House Republicans backed away from their demand that any package make Bush tax cuts permanent, which would have been a deal-killer for Democrats.

Some tension between the administration and congressional leaders remained, though, as Senate Majority Leader Harry Reid, D-Nev., sharply criticized Bush for leaks about the White House's proposal.

Bernanke's testimony before the House Budget Committee seemed to repudiate those in Congress who seek to use economic stimuli to pass policies that affect the economy in the more distant future - permanent tax cuts, for example, or long-term infrastructure projects.

Bernanke explicitly, and repeatedly, urged Congress not to conflate policy changes that might make sense in the long run with those that would provide help for the economy in 2008.

"Fiscal stimulus that come 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. He added later, "I think in order for this to be effective, you need to move very quickly."
Congressional leaders appeared to heed the advice about separating long-term economic policy from short-term stimuli. Pelosi emphasized, after a conference call with Bush, that Congress and the administration are working on a proposal that will be "timely, targeted, and temporary," which is consistent with the principles Bernanke described in his testimony.

"We'd rather keep this as plain vanilla as we can," said Budget Committee chairman John Spratt, D-S.C.

GOP leaders indicated they could go along with a stimulus plan that does not include a permanent extension of Bush's first-term tax cuts, which expire in 2011.

"They've drawn a line in the sand on the Bush tax-cut extension, so we've seen a shift," said Rep. Eric Cantor of Virginia, the Republican leadership's chief deputy whip. "There's been a realization that we need to get something done, and the expectations are not that high that we will get that done."

A senior House Democratic leadership aide said Pelosi was willing to greet the Republican olive branch of dropping the demand to make Bush's tax cuts permanent with an olive branch of her own, acceptance of a significant business tax cut, likely to encourage investment.

Also, House Ways and Means chairman Charles Rangel, D-N.Y., vowed to reach accord with congressional Republicans and Bush over an economic stimulus package, even snubbing colleague and presidential candidate Sen. Hillary Rodham Clinton in the interest of bipartisanship.

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