Ben Bernanke Says Fed is Ready for Action, but Warns Congress About Deep Spending Cuts

Federal Reserve Chairman Ben Bernanke told the Joint Economic Committee this morning that Congress should not cut spending sharply while the economy is weak. Bernanke feels lawmakers face a tough challenge… they must avoid deep spending cuts in the short run that could halt the recovery. But they must also eventually cut spending farther than the $1.5 trillion in deficit cuts being sought by a special committee. Bernanke sighted poor job growth as the main factor depressing consumer confidence, as it is forcing the U.S. economy to grow slower than the Fed anticipated. The Fed Chairman reiterated that the Fed is prepared to take further steps to help a fragile economic recovery. Bernanke said, “The Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability.” Financial stresses in Europe have greatly impacted our economy. Bernanke feels that the European financial strains pose “ongoing risks” to U.S. economic growth. He pointed to the likelihood of more sluggish job growth in the period ahead, and said a depressed housing sector and tight credit are other factors preventing a faster expansion. Bernanke spoke in Cleveland last week about the long-term unemployment problem, calling it a “national crisis.” In that speech, he urged Congress to make unemployment, budget deficits, and the housing market top priorities, because there is only so much the Fed’s interest rate policies can achieve.