Economic recovery 'close to faltering,' Ben Bernanke tells Congress
Federal Reserve Chairman Ben Bernanke offers sobering data to Congress about the weak economic recovery and gives little hope of an imminent turnaround.
Jonathan Ernst /REUTERS
Despite significant improvement in US financial markets since 2008, the economic recovery is “close to faltering,” Federal Reserve Chairman Ben Bernanke told a joint congressional panel on the US economic outlook on Tuesday.
After dramatic interventions to resolve the financial crisis that broke out in the fall of 2008, there are no silver bullets for a swifter recovery, beyond a willingness to “take further action as appropriate,” the Federal Reserve chief said.
New economic data signal a recovery even weaker than previous estimates. In the first half of the year, the nation’s gross domestic product increased at an average rate of less than 1 percent. Over the summer, private sector jobs increased by only about 100,000 jobs per month, and public sector jobs continued to drop. Moreover, new home construction – the engine of previous recoveries – was sputtering at only about a third of its average in recent decades.
Closer to home, Mr. Bernanke criticized Congress for contributing to an uncertain business climate with last summer’s debt-limit debate, which raised the prospect of a first-ever US default on its national debt.
“Unfortunately the brinksmanship of the summer and at least perception in the minds of some investors that the United States might actively consider defaulting on its debt, and moreover, the possibility that this might be recurring periodically, I think was a negative for the financial markets,” he said.
“It was the reason that the downgrade occurred, that the S&P cited the political process more than the amount of debt outstanding. It's no way to run a railroad, if I may say so,” he added.
Congress’s Joint Select Committee on Deficit Reduction, created as part of the debt-ceiling deal, has been tasked with cutting $1.5 trillion in deficits over the next 10 years. It’s a substantial step, Bernanke said. “However, more will be needed to achieve fiscal sustainability.”
“Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the US economy,” he added. “Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector.”
As the recovery stalled, the independent central bank became a target both on the left and the right. Tea party conservatives, led by Rep. Ron Paul (R) of Texas, blamed the Fed for weakening the nation’s currency and prospects. More recently, Gov. Rick Perry (R) of Texas, a presidential candidate, dubbed Bernanke’s conduct as chairman “almost treasonous.” House Republican leaders last month wrote a letter to Bernanke urging the Fed to avoid more stimulus measures.
“Do you have any other arrows in your quiver at this point?” asked Rep. Michael Burgess (R) of Texas, a member of the House tea party caucus. “Have most of them already been used? Is the only arrow you have left the printing press?”
“We do have tools,” said Bernanke. “But obviously we want to evaluate the costs and benefits of any decisions we take, and we want to make sure that the economy is getting the appropriate amount of stimulus from us.”
At the same time, some voices on the left look to the Fed to take more dramatic moves. Sen. Bernie Sanders (I) of Vermont called on Bernanke to provide massive, low-interest loans to small businesses. “If you during the financial crisis provided $16 trillion dollars to banks all over the world, why are you not providing the kinds of money that small businesses now desperately need so they can expand and create jobs?" he asked.
“It’s not our role, and we do not have the authority to make general loans to the broader economy,” Bernanke responded.
The latest Fed move, modest by recent standards, aims to purchase $400 billion of six- to 30-year US Treasury securities by the end of June 2012, then sell an equal amount of short-term Treasury securities set to mature in three years or less. This “maturity extension program” will not change the Fed’s balance sheet, but should “put downward pressure on longer-term interest” rates and encourage growth. “It’s a significant step, but not a game changer in some respects,” he told Congress.
“He’s not dismissing action by the Fed, but he’s not announcing it either,” said Stan Collender, a congressional budget analyst with Qorvis Communications in Washington. “It’s a prudent position for an economic policymaker to take given the volatility in the market. “