Federal Reserve Chairman Ben Bernanke appears in Washington, D.C., on Monday, where he spoke to the House budget committee. (Lawrence Jackson/Associated Press)

Washington needs to spend more cash if the global economy is to fend off a long-term slump, the chairman of the U.S. Federal Reserve Board said Monday.

Ben Bernanke told a group of U.S. representatives that Congress should look closely at passing a new stimulus package as a way of restoring confidence in the nearly moribund world banking system.

"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," Bernanke said in testimony before the House budget committee on Monday.

Congress currently is looking at whether to use more taxpayers' money to help out ailing banks and other financial institutions, perhaps as much as $150 billion US, according to some reports.

Many voters, however, are upset at the perceived handout for these financial institutions while the same banks and trust companies repossess the houses of defaulting mortgage holders.

So far, Congress has ponied up $700 billion in fiscal assistance to buy back almost-worthless mortgage-backed securities and invest directly in bank stocks.

Still, "we are in a serious slowdown," Bernanke said in response to a committee question.

Ignoring that reality would be bad for the economy, he said.

Bush soothes investor nerves

U.S. President George W. Bush also signalled that the U.S. economy has problems, but that the sweaty palms that characterized investors and working Americans a few days ago have been replaced by steely resolve as the government's policies begin to show positive effects.

"I have heard that people's attitudes are beginning to change, from a period of intense concerns — and I would call it near panic — to being more relaxed and beginning to see the effects of changes and the liquidity that is being pumped in the system, that we got a long way to go.

"As I said Friday, this thaw — took a while to thaw, it's going to take a while to unthaw. But it's — but the attitude here is a little different than it might have been a week ago," Bush said, speaking at an economic roundtable in Louisiana on Monday.

Rate cuts coming

Economists are now predicting that both the Bank of Canada, which releases its interest-rate decision on Tuesday, and the U.S. Federal Reserve will cut rates further.

"Economic data have been weaker-than-expected and risk a sharper downturn in Q3 and Q4 than in our baseline forecast," said RBC assistance chief economist Dawn Desjardins in a morning commentary.

RBC now expects a cut of 50 basis points by the U.S. central bank in the near future, placing the influential fed funds rate at one per cent into 2009.

The Bank of Canada is expected to match the U.S. Federal Reserve, putting its benchmark overnight rate at two per cent.

Still, many economists view Bernanke's plea for Congress to pass an economic stimulus plan as a sign that past interest rate cuts and other measures aren't enough.

"The Fed has accepted that the rate cuts and actions, even if they are of help to the financial sector, will not be adequate to stabilize the economy," Arpitha Bykere, economic analyst for RGE Monitor, told CNN.

Some good news

Not all of Monday's economic news was bad.

The U.S. Conference Board's leading indicator, a mixture of various financial numbers, showed an economy with a rising outlook for the first month in five. The indicator, which includes such figures as interest rate spreads, supplier deliveries and new orders, rose 0.3 per cent, a much better reading than Wall Street's expected decline of 0.2 per cent.

"Data on hand reflect a contracting economy, but not one in free-fall," said Ken Goldstein, a labour economist at the Conference Board, a private-sector business think-tank.

The Conference Board's leading indicator attempts to show the direction of activity in future months based upon past figures. Thus, most economists consider the index a volatile predictor of upcoming activity.