Ben Bernanke warns Congress on “fiscal cliff”
With job creation slowing down and the economy running at a snail’s pace, Federal Reserve Chairman Ben Bernanke appeared before the Senate Banking Committee yesterday and urged Congress to take action to avoid the “fiscal cliff”:
Federal Reserve Chairman Ben Bernanke on Tuesday implored Congress to act quickly to pull the country back from the “fiscal cliff” set to go into effect at the end of the year, warning that a failure to do so will further dampen the sluggish economic recovery.
“The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery,” Bernanke said at a Senate Banking Committee hearing. “Doing so earlier rather than later would help reduce uncertainty and boost household and business confidence.”
Bernanke was careful to stay out of the partisan debate over what specific tax and spending policies Congress should pursue, limiting his advice to telling lawmakers they simply need do something to improve the deficit outlook.
“I’m not in charge here, Congress is,” Bernanke said.
Meanwhile, the central bank chairman did little to tip his hand on what, if any, action the central bank will take to stimulate the economy.
The Federal Reserve, which has already lowered its economic outlook for the rest of the year, has extended Operation Twist, the first round of which was a failure, and could launch a third round of quantitative easing — essentially a move to monetize the nation’s debt, to which Wall Street would likely respond positively. However, the first two rounds of quantitative easing don’t seem to have had much of an effect.
Sen. Chuck Schumer (D-NY) seemed particularly concerned, asking Bernanke to take action to stimulate the economy before November, which is when voters will head to the polls to cast their ballot in the election. Bernanke, seeing the angle taken by Schumer, responded, “We will act in an apolitical, non-partisan manner to do what is necessary for the economy.”
Certain members of Congress, like Sen. Schumer, don’t seem to understand that there is only so much the Fed can do, and what they have tried really hasn’t worked all that well. We’re still in an economic rut and it doesn’t look like it’ll be ending in the near future. What Congress could do is put some confidence back in the economy extending current tax rates, but that would take away a political football for President Barack Obama and Senate Democrats, who are adamant that tax cuts for higher-income earners expire at the end of the year.
And while Bernanke may have stayed out of the debate over the taxes yesterday, he has previously warned Congress that failing to extend current tax rates would have disasterous effects on the economy. Unfortunately, Senate Democrats don’t seem to care.
Image courtesy of the Telegraph