Federal Reserve Chairman Ben Bernanke tells Congress that its tax hikes and spending cuts are creating 'strong headwinds' for economic recovery and could be costing 750,000 new jobs.
James Lawler Duggan/Reuters
He said that the economy faces “strong headwinds created by federal fiscal policy,” and he said this “makes a big difference” in terms of jobs and the unemployment.
Appearing at a congressional hearing, Chairman Bernanke said that Congress's moves to pare back on tax cuts and federal spending are reducing the pace of economic growth by about 1.5 percentage points. For reference, the economy was growing by about 1.8 percent in the year’s first quarter.
Bernanke said an extra 1.5 percentage points of growth could add as many as 750,000 new jobs and bring the unemployment rate from 7.6 percent to 6.9 percent.
His words represent a pointed message at a time when economic growth is weak, the Fed has been struggling to bring the jobless rate down, and Congress has shifted from stimulus efforts to focus on bringing down federal deficits.
Bernanke didn’t say Congress should start ignoring federal deficits to launch a massive new stimulus effort. But he said the need for fiscal discipline to avoid an unsustainable buildup of national debt can be addressed for the long term without imposing severe tightening this year.
“My suggestion to Congress is to consider policies that involve somewhat less restraint in the near term,” he said, adding later that in his view Congress has failed so far to address long run issues such as entitlement reform.