(RTTNews) - Federal Reserve Chairman Ben Bernanke headed to Capitol Hill for part two of his plea for a bailout of the financial markets. Facing the Joint Economic Committee, Bernanke heard from committee chairman Senator Charles Schumer (D-NY), who stressed that there is a need to act quickly but urged protection of Main Street.

“I do believe we must act and we must act soon,” Schumer said in prepared remarks. “But let us be clear - Americans are furious.and they are right to be astonished and very angry.”‘

However, the mood on Capitol Hill appeared to be less adversarial than on Tuesday, with members of the JEC remaining skeptical but prepared to face the task at hand.

“The idea that the private sector does not want to buy these assets and this is somehow good for the taxpayers seems dubious,” Rep. Carolyn Maloney (D-NY) said.

Senator Sam Brownback (R-KS) added, “To date we have dealt with symptoms of the crisis. We must now deal with the cancer itself.”

For his part, Bernanke reiterated his plea to lawmakers for quick action to combat what he referred to as the “grave threats” facing the financial markets.

“Stabilization of our financial system is an essential precondition for economic recovery,” Bernanke said in prepared remarks.

“I urge the Congress to act quickly to address the grave threats to financial stability that we currently face,” he added.

The $700 billion taxpayer funded rescue plan has generated harsh criticism from both sides of the aisle, although the ticking of the clock has presented Washington with a sense of urgency as the United States grapples with what is considered the largest financial crisis in its history.

Bernanke noted in the Q&A portion of his testimony that while the plan does expose the taxpayers to risk, “if there is a loss it will be much less than $700 billion.”

The alternatives to not passing a plan are far worse than the risks associated with the rescue, Bernanke said.

“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 further drag on growth,” he said in the written portion of his testimony.

“All told, real gross domestic product is likely to expand at a pace appreciably below its potential rate in the second half of this year and then to gradually pick up as financial markets return to more-normal functioning and the housing contraction runs its course,” he added.

However, the outlook contains significant downside risks, Bernanke noted. Consumer spending especially will be “sluggish, at best, in the near term” as the impact of the economic stimulus wanes. In addition, exports, one of the few bright spots in the U.S. economy, will likely decline as global demand subsides amid a slowing in global growth.

One of the most troubled sectors in the U.S. economy is the infected housing sector. However, Bernanke appeared cautiously optimistic that the housing sector could be inching its way towards recovery.

“The recent indicators of the demand for new and existing homes hint at some stabilization of sales, and lower mortgage rates are likely to provide some support for demand in coming months,” the Fed Chairman said.

“Lower house prices and mortgage interest rates are making housing increasingly affordable over time,” he explained.

Inflation expectations have subsided, Bernanke noted, telling Congress, “The news on inflation has been more favorable.” The decline in the price of oil has been helpful in easing price pressures, although Bernanke noted that upside risks remain a significant concern.

“The prices of oil and other commodities, while remaining quite volatile, have fallen, on net, from their recent peaks, and the dollar is up from its mid-summer lows,” he said. However, “the fluctuations in oil prices in the past few days illustrate the difficulty of predicting the future course of commodity prices.”

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Posted in Categories: Economy, Releases, USA.

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