Federal Reserve chairman Ben Bernanke, in his testimony on the economic outlook before the committee on the budget of the US House of Representatives, said additional policy easing may be necessary to ease the strained financial sector in view of the a contraction in the availability of credit

 "More-expensive and less-available credit seems likely to impose a measure of restraint on economic growth," Bernake said. 

He said the slowing in residential construction, had reduced about 1 percentage point from the growth rate of real gross domestic product in the third quarter of 2007, and possibly curtailed growth even more in the fourth quarter, and it "may continue to be a drag on growth for a good part of this year as well".

"Recently, incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and that the downside risks to growth have become more pronounced.  In particular, a number of factors, including continuing increases in energy prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending as we move into 2008. 

The December US Bureau of Labour Statistics report has also been disappointing. He said "The unemployment rate increased 0.3 percentage point, to 5.0 per cent from 4.7 per cent in November, and private payroll employment declined.  Employment in residential construction posted another substantial reduction, and employment in manufacturing and retail trade also decreased significantly.  Employment in services continued to grow, but at a slower pace in December than in earlier months".

Amidst growing recession concerns, stocks suffered the biggest ever decline this year despite Fed Chairman publicly supporting a fiscal stimulus plan. In his testimony he said, "To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next twelve months or so."

The Fed chief also said, that any fiscal package "should also be efficient, in the sense of maximising the amount of near-term stimulus per dollar of increased federal expenditure or lost revenue."

Bernanke concluded his testimony saying any program should be explicitly temporary, both to avoid unwanted stimulus beyond the near-term horizon and, importantly, "to preclude an increase in the federal government's structural budget deficit."