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In testimony prepared for Congress' Joint Economic Committee, Bernanke repeated his warning of dire economic consequences if the George W. Bush administration's bailout plan is not enacted and if credit woes persist.
"The intensification of financial stress in recent weeks, which will make lenders still more cautious about extending credit to households and business, could prove a significant drag on growth," he said. "The downside risks to the outlook thus remain a significant concern."
He urged Congress "to act quickly to address the grave threats to financial stability that we currently face."
International trade provided considerable support for the U.S. economy over the first half of the year, the Fed chief said.
In coming quarters, however, the contribution of net exports to U.S. production is not likely to be as sizeable as it was in the first half of the year, he said.
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Federal Reserve Chairman Ben Bernanke speaks after meeting with Treasury Secretary Henry Paulson, House Speaker Nancy Pelosi and other congressional leaders in the U.S. Capitol in Washington Sept. 18, 2008 |
Bernanke appeared much more concerned about the stumbling economy right now, than about the prospects of inflation getting out of control.
If not reversed, the recent retreat in oil prices and other commodities together with the slowing economic growth "should lead inflation to moderate later this year and next year," he said.
The plan Bernanke urged Congress to approve would allow the government to buy up to 700 billion U.S. dollars of bad mortgages and other troubled assets held by endangered banks and financial institutions.
Getting those debts off their books should bolster their balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis.
The plan also would raise the statutory limit on the national debt from 10.6 trillion dollars to 11.3 trillion dollars in order to make room for the massive rescue.
The rescue package was one of the extraordinary measures the administration had devised to prevent a financial calamity, which would have devastating implications for the broader economy.
Earlier, the government took control of mortgage giants Fannie Mae and Freddie Mac, provided an 85-billion-dollar emergency loan to the nation's largest insurance company American International Group Inc. and temporarily banned short selling of hundreds of financial stocks.