Bernanke says stimulus plan will help

LONDON, Jan. 13 (UPI) -- U.S. Federal Reserve Chairman Ben Bernanke said Tuesday an economic stimulus package will need a healthy financial system behind it to make it work.

"History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively," Bernanke said in a speech at the London School of Economics Tuesday.

Bernanke said the incoming Obama administration's stimulus package ""could provide a significant boost to economic activity."

"However, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize … the financial system," he said.

Bernanke noted that with federal fund rate "now close to zero," the Fed's ability to provide stimulus through rate reductions was limited.

However, he said, the Fed "retains powerful policy tools and will use them aggressively."

Among the tools available, the Fed retains its "traditional role as the lender of last resort," he said.

"The global economy will recover, but the timing and strength of the recovery are highly uncertain," he said.