On January 18, 2008, Federal Reserve Chairman Ben Bernanke expressed muted support for an economic stimulus package, with the emphasis on muted.
I agree that fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary policy actions alone. But the design and implementation of the fiscal program are critically important. A fiscal initiative at this juncture could prove quite counterproductive, if (for example) it provided economic stimulus at the wrong time or compromised fiscal discipline in the longer term.
On October 20, 2008, as Congress mulls over a second, presumably much more aggressive stimulus package, Bernanke was decidedly less demure.
Moreover, with the outlook exceptionally uncertain, the optimal timing, scale, and composition of any fiscal package are unclear. All that being said, with the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate.
When processed through the How the World Works Bernanke-universal-translation-FedSpeak-o-Matic, what we hear is the learned professor screaming: TURN THE FIRE HOSE ON, FULL BLAST, NOW!
(Incidentally, for an assessment of the economy in How the World Works published in January that holds up pretty well ten months later, you may peruse "Bernanke Presses the Panic Button" at your leisure.)