A “Good Year” Ahead Provided Fiscal Cliff is Avoided: Bernanke
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Federal Reserve Chairman Ben Bernanke has said that the United States could enjoy a “good year” in 2013 if the fiscal cliff is resolved. Failing to avoid the cliff, he said, would pose a “substantial threat” to economic recovery.
Uncertainty about the fiscal cliff and the debt ceiling appears to be weighing on the economic climate in the US, said Fed Reserve Chairman Ben Bernanke in a speech in New York on Tuesday.
Federal Reserve Chairman Ben Bernanke has said that the United States could enjoy a “good year” in 2013 if the fiscal cliff is resolved. Failing to avoid the cliff, he said, would pose a “substantial threat” to economic recovery.
Uncertainty about the fiscal cliff and the debt ceiling appears to be weighing on the economic climate in the US, said Fed Reserve Chairman Ben Bernanke in a speech in New York on Tuesday.
Repeating an earlier warning that running over the $600 billion cliff of expiring tax breaks and automatic spending cuts could derail the US recovery, Bernanke said that speculation and uncertainty over how budget negotiations will be resolved were already damaging growth.
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He said:
[quote] Such uncertainties will only be increased by discord and delay. In contrast, cooperation and creativity to deliver fiscal clarity – in particular, a plan for resolving the nation’s longer-term budgetary issues without harming the recovery–could help make the new year a very good one for the American economy. [/quote]
Warning that the federal deficit is on an unsustainable path, Bernanke also urged Congress and White House to strike a quick deal to reduce the government’s huge budget deficit, which has exceeded $1 trillion for a fourth consecutive year.
“The realisation of all of the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the recovery – indeed, by the reckoning of the Congressional Budget Office and that of many outside observers, a fiscal shock of that size would send the economy toppling back into recession,” he said.
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At the same time, he said Fed policy will remain accommodative until the recovery is on a firmer, more assured path:
[quote] We’re going to do what we can to support ongoing recovery in growth and jobs and create the demand for output, the demand for firms’ products that will remove that uncertainty about the future sustainability of the recovery. [/quote]
The Fed has held overnight rates near zero since December 2008 and aims to maintain the rate through mid-2015 and has purchased about $2.3 trillion in securities in a so-called quantitative easing of monetary policy to drive other borrowing costs lower. The Fed vowed in September, as part of QE3, to buy $40 billion in housing debt each month.
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