President George W Bush and the head of the Federal Reserve on Thursday backed government action to give the sagging US economy a boost to help ward off a recession.

Bush, facing calls for action by the Democratic-led Congress, came out in favour of legislation to stimulate the economy after returning from a Middle East peace-making trip.

"I think the president does believe that over the short term that to deal with this softening in the economy that some boost is necessary," White House spokesman Tony Fratto said Thursday.

Bush is widely believed to favour some kind of temporary tax cut, but Fratto declined to elaborate. He said Bush planned to discuss possible elements of an economic stimulus package with congressional leaders later Thursday.

Like the White House, Fed chief Ben Bernanke stopped short of predicting a recession for the world's largest economy.

"We are not forecasting a recession, we are forecasting slow growth," Bernanke told the House of Representatives budget committee.

Any stimulus package agreed by Bush and Congress should be temporary and aimed at boosting growth in the near term so it will not worsen the federal budget deficit, he said.

"To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next 12 months or so," Bernanke said.

The crisis in the housing market coupled with increases in energy prices, lower equity prices, weaker home values and the December increase in the unemployment rate will weigh on consumer spending in the next year, Bernanke said.

"Incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and that the downside risks to growth have become more pronounced," Bernanke said.

The US jobless rate jumped to 5 per cent in December from 4.7 per cent in November.

Bernanke strongly hinted that the Federal Reserve will cut interest rates to increase consumer spending and investment at its next meeting January 29-30 to alleviate the pressure on the flagging economy.

"In light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary," he said.

Bernanke noted that the Fed has cut its benchmark rate to 4.25 per cent from 5.25 per cent since September to fight a slump in the housing market and a credit crunch, set off by the meltdown in the US subprime mortgage market.

The US economy is expected to show a slowdown when the government releases the initial fourth-quarter growth estimate at the end of the month.

Bernanke criticized federal deficit spending at a time when the economy was weakening, and called for long-term fiscal responsibility. Any plans to cut taxes must be met by cuts in federal spending, he said.

"What comes in needs to equal what goes out," he said.