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The Great Jubilation of 2012
Fed Chief Focuses Anew on U.S. Debt
WASHINGTON — The Federal Reserve chairman, Ben S. Bernanke, renewed his advocacy Thursday for Congress to confront “the urgent issue of fiscal sustainability” by enacting a plan to reduce the federal debt.
Mr. Bernanke repeated his familiar caution that Congress should not cut spending or raise taxes too quickly, because doing so could undermine the economic recovery, but said that a credible plan to make such changes in the long-term could spur growth by improving the confidence of businesses and consumers.
“Fortunately, the two goals of achieving long-term fiscal sustainability and avoiding additional fiscal headwinds for the current recovery are fully compatible — indeed, they are mutually reinforcing,” Mr. Bernanke told the House Committee on the Budget, according to an advance copy of his prepared remarks.
Mr. Bernanke also repeated the Fed’s assessment, released last week, that the pace of growth would increase modestly this year, but that the economy still faces significant challenges, including the depressed state of the housing market and the risk that problems in Europe would infect the rest of the world.
The Fed said last week that the economy would need its help for years to come and that it planned to keep short-term interest rates near zero through late 2014. Mr. Bernanke repeated that assessment Thursday, although he added that the economy was showing some signs of improving health.
“Fortunately, over the past few months, indicators of spending, production and job market activity have shown some signs of improvement,” he said.
Also last week, the Fed announced for the first time a formal interpretation of its Congressional mandate to maintain price stability and maximum employment. The Fed said that it was committed to maintaining inflation at about 2 percent a year.
Mr. Bernanke was likely to face questions about this statement from the committee later Thursday, both from those concerned that it does not give equal weight to the Fed’s responsibility for encouraging job growth, and from those concerned that it allows for too much inflation. Article Source: Yahoo Finance
