Bernanke calls for decisive Congress steps to revive economy
Federal Reserve Board Chairman Ben Bernanke Thursday told Congress that the Fed alone can't put Americans back to work as the economy needs fiscal policy intervention too.
Testifying on Capitol Hill, in his usual calm and unruffled manner Bernanke said, "I'd be much more comfortable if Congress would take some of this burden."
Admitting that the U.S. economy is still at risk and the recovery is fragile, Bernanke refused to be pinned down on what additional steps can be taken to spur economic growth.
The Fed chief said economic growth and job creation would be aided if Congress could take decisive steps to mend US policies on taxes and government spending.
The ideal path forward is a trick, he said as it involved avoiding a tax-hike shock in the near term while also setting the nation on track to control public debt levels in the medium term.
The nation faces a so-called fiscal cliff of tax hikes that are scheduled to go into effect from January 1, which Bernanke said could push America into recession if unaddressed by Congress.
At the same time, he called the pace of buildup in national debt caused by federal spending that isn't matched by tax revenues unsustainable.
For investors seeking signs of additional stimulus, or a third round of quantitative easing, known as QE3, to boost the sagging economy, there was nothing forthcoming.
Earlier this week three other Federal Reserve officials said the Fed may need to act to support economic growth.
Bernanke however strived to bring calm stressing that the Federal Reserve was prepared to act to boost the economic recovery . "I don't think we're in a Greek situation. That being said, I don't think we should be complacent," Bernanke said, responding to a question about whether the U.S. economy is headed toward Greece's debt issues.
Fears persist that Greece may have to exit the euro if it's unable to borrow more to finance its debt.
Given that it's an election year, with little sign of agreement between the parties, it appears unlikely that a fiscal accord will be reached before the November election.
By early next year, the Treasury is set to run up against its borrowing limit, which is set by Congress. That means the wider debate over taxes and spending could be linked to brinkmanship over a deadline for raising the debt ceiling.
Testifying before a joint House-Senate committee on the economy, Bernanke said that if Congress does nothing, the economy would take a short-term hit equal to about 3 to 5 per cent of gross domestic product. With the economy growing at a pace of about 2 per cent currently, such a blow could tip the nation officially back into recession.
The downdraft in GDP would come as households see taxes rise on ordinary income and capital gains.
Federal spending cuts are also scheduled under current law, which many economists say would reduce economic activity as well.
The message Bernanke was "trying to sell" is to avoid that fiscal cliff while laying out a longer-term plan to reduce federal deficits during the next few years.
To lawmakers query on what is required to spur growth while guarding against inflation and fend off a potential credit squeeze in the event of eurozone crisis deepening, he said the Fed stands ready to support the US banking system.
In effect he echoed the Congressional Budget Office which in its latest report said the budget problems can be addressed through federal spending cuts, tax hikes, or some combination of those two. But failing to address the problem would mean slower economic growth in the future, CBO director Douglas Elmendorf said.
Politically, it's a tough challenge. Some lawmakers have developed proposals and tried to cultivate bipartisan support.
Source: United States News.Net
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