Stripped of the restrained language and circumlocutions that traditionally characterize the Federal Reserve Board chairman’s appearances on Capitol Hill, central banker Ben Bernanke had an unusually blunt message for Congress about the economic recovery: Don’t mess it up.
He told Congress now is not the time “to radically reduce our spending or raise our taxes because the economy is still in a recovery mode and needs that support.”
Significant tax increases, beyond those that took effect at the beginning of the year, are unlikely, backed as they are by only a handful of lawmakers mesmerized by a realistic course towards a balanced budget.
However, others, specifically the sophomore and freshmen classes of House Republicans, are eager to inflict further cuts in the federal budget, beyond the already damaging cuts made by the across-the-board slashes in government spending under an ill-advised sequester enacted last year.
Those tax increases and spending cuts could reduce the gross domestic product by 1.5 percent this year, he said.
And federal and local governments haven’t helped the recovery by cutting payrolls. Bernanke told Congress that in previous recoveries the public sector helped by adding jobs. But public sector employment is down 64,000 jobs over the last year.
Moreover, Bernanke said the lawmakers’ usual lurid debate and exchange of threats over fiscal issues, such as the impending increase in the debt ceiling, “will evolve in a way that could hamper the recovery.” In other words, put a lid on the rhetoric lest we talk our way back into recession.
Bernanke rattled the markets in June when after a Fed meeting he hinted the central bank might begin winding down its stimulus program. This week he reassured the markets that there was no “preset course” for easing up on those programs and that indeed they may stay in place past the informal benchmarks for their expiration.
The Fed’s $85 billion-a-month bond-buying will not wind down at the end of the year but will continue until there is “substantial progress” in economic performance.
Bernanke had said interest rates would remain near zero while the jobless rate is above 6.5 percent, but now the chairman said he would keep the rate where it is if he believes the decline in the jobless percentage is due to people leaving the workforce rather than joining it.
Bernanke guided the Fed through the Great Recession when kind words were few and far between for top government financial officials. But this past week members of both House and Senate banking committees had little but praise for his performance.
Of course, this was likely the last of his semi-annual appearances before Congress; he is scheduled to step down Jan. 31, when his second term as chairman ends, meaning there’s little chance the kind words will come back to haunt the members.