07/17/12
Bernanke pleads with lawmakers to take action to avoid coming ‘fiscal cliff’
Federal Reserve Chairman Ben Bernanke pleaded with lawmakers Tuesday to take action swiftly to avoid taking the nation’s economy over a “fiscal cliff.”
In testimony to the Senate Banking Committee, Bernanke said the economy has leveled off, and he warned Congress it will add to economic instability if it does not take action to avoid steep tax hikes and spending cuts set to begin in January.
“Fiscal decisions should take into account the fragility of the recovery,” Bernanke said. “That recovery could be endangered by the confluence of tax increases and spending reductions that will take effect early next year if no legislative action is taken.”
Addressing the cliff is the “most effective way Congress could help to support the economy right now.”
The George W. Bush-era tax rates are set to expire on all income brackets on Jan. 1, and spending cuts for defense and non-defense programs are also set to begin that month.
If lawmakers fail to act, Bernanke said, they could see a repeat of the drama from last summer, when stocks plunged amid uncertainty over whether Congress would raise the nation’s debt limit.
“Doing so earlier rather than later would help reduce uncertainty and boost household and business confidence,” he said, calling on members to find a balanced policy that makes the nation's finances sustainable, but not in so dramatic a fashion it endangers the recovery.
In particular, Bernanke warned that if Congress punts on a deal, the economy could suffer significantly — as would the already weak reputation of the nation’s policymakers.
“I think just delaying everything, just saying we’re not going to do it, put it off for another year, I think would be a very bad outcome,” he said.
Bernanke took pains to make his warnings to Congress not seem like a lecture, emphasizing that the apolitical Fed is not picking sides in the perpetual fight over taxes and spending.
“I’ve been assigned to focus on maximum employment and price stability, not to hold threats over Congress’s head,” he said. “Congress is in charge here, not the Federal Reserve.”
Bernanke kept his distance even as lawmakers on both sides of the aisle sought to pull the economic expert to their side.
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