Fed Chief Talks of 'Decisive' Action

The risks the economy faces were underscored yesterday by reports that suggest American consumers are pulling back. Major U.S. retail chains' sales grew 2.2 percent this holiday season, according to an industry group, less than the rate of inflation and representing the weakest holiday season since 2002.

American Express took a $440 million charge because more holders of its credit cards failed to pay their debts. Its chief executive said that the poor credit trends were most pronounced in California, Florida, and other states with big losses from the housing downturn. Capital One of McLean warned investors that its profit for 2007 would be sharply lower than forecast for the same reason.

As Bernanke indicated that he is willing to use monetary policy to combat the risk of a serious downturn, momentum continued to gather for using the government's other major economic policy tool -- fiscal stimulus -- to combat the slump in the economy.

President Bush has said he may propose government action to stimulate the economy -- probably a tax cut. Congressional Democrats are formulating stimulus measures of their own. Yesterday, former Treasury secretary Robert Rubin, former Fed vice chairman Alice Rivlin and other leading economic thinkers joined the chorus advocating such a move.

"You can care very deeply about the structural fiscal condition and still believe that properly structured stimulus makes sense," said Rubin, who was leading a Brookings Institution panel on how a stimulus should be designed.

Brookings scholars Douglas W. Elmendorf and Jason Furman recommended that a stimulus plan be implemented quickly if it is to have any hope of averting an economic downturn, that it be targeted to put money in the pockets of people who are most likely to spend it and that it be a one-time shot so as not to increase long-term deficits.

Panelists, including Republican economist Martin Feldstein, generally agreed on that approach, though they did not express great confidence that legislation could make it through Congress and the White House with those goals intact.

Bernanke told his audience that his views on a stimulus package were "inchoate" when asked about it. He said he is interested in discussing specific plans with the administration and congressional leaders as they develop them.

The speech was a homecoming of sorts for Bernanke; it was delivered in the Mayflower Hotel, where, in 1965, Bernanke was eliminated from the National Spelling Bee for misspelling "edelweiss."