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The cuts would hit everything from the FBI to public schools, and would come at a time when the economy is struggling to recover the jobs lost during recession.
Many members of Congress, including those at Tuesday's hearing, don’t like the sequester any better than Bernanke.
The sequester appears set to take effect, however, because the two parties differ sharply on how to replace it, with Republicans wary of tax hikes and Democrats wary of deep spending cuts or big adjustments in entitlement programs such as Medicare.
Whatever the mix of policies, Bernanke said the goal should be to replace the sequester “with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run.”
Fiscal policy is Washington’s consuming issue now, prompting senators to seek numerous comments from Bernanke, the nation’s most visible economic prognosticator. He was questioned about a range of topics, from policy toward “too big to fail” banks to whether the Fed’s own monetary policies are still helping the economy.
Several senators expressed concern that financial markets still expect that the government would bail out big banks if another crisis hits. And some voiced doubt over whether the Fed’s bond-buying program, known as “quantitative easing,” is working.
The Fed chairman advised lawmakers to weigh the quality of federal spending, not just its quantity.
He said some spending or tax policies can help the economy because they “increase incentives to work and save, encourage investments in workforce skills, advance private capital formation, promote research and development, and provide necessary and productive public infrastructure.”