In remarks that went well beyond his previous calls for Congress and the White House to address the nation’s long-term fiscal challenges, Mr. Bernanke suggested the process itself was broken.
“The country would be well served by a better process for making fiscal decisions,” he said.
Mr. Bernanke said he was “optimistic” about the long-run prospects for the American economy, and he gave little indication the Fed was mulling any increase in its economic aid programs, although he said the issue would be revisited in September.
But Mr. Bernanke, the nation’s most prominent economist, warned that the government had emerged as perhaps the greatest threat to renewed growth.
“The quality of economic policy-making in the United States will heavily influence the nation’s long-term prospects,” Mr. Bernanke said in the much-anticipated speech at a policy conference held each August at a resort in Grand Teton National Park.
The turn toward stronger language was welcomed by some observers of partisan battles in Washington that have pitted Republicans demanding spending cuts to reduce the federal debt against Democrats arguing for cuts and increased revenue.
A deal reached earlier this month to raise the maximum amount the government can borrow, in exchange for spending cuts of at least $2.1 trillion, would not reduce the debt to a level most economists regard as sustainable, and the chaotic political brinksmanship led Standard Poor’s to remove long-term Treasury securities from its list of risk-free investments.
Maya MacGuineas, president of the non-partisan Committee for a Responsible Federal Budget, described Mr. Bernanke’s remarks as “an emergency intervention.”
“It was great to hear him weigh in so strongly,” said Ms. MacGuineas. “He’s saying what needs to be said, and hopefully people will listen because of the messenger.”
Mr. Bernanke’s speech comes on the heels of the Fed’s announcement earlier this month that it intends to hold short-term interest rates near zero until at least the middle of 2013, a reflection of its view that growth will not be fast enough during that period to drive up wages and prices.
Many investors had viewed that announcement as merely the opening of a new round of efforts by the Fed to bolster an economy that once again is struggling to grow. The government said Friday that it now estimated the economy expanded at an annual pace of just 1 percent in the second quarter, down from its initial estimate of a 1.3 percent annual pace.
Friday’s speech was eagerly anticipated because Mr. Bernanke and his predecessors have made a habit of coming to this conference, hosted by the Federal Reserve Bank of Kansas City, to clarify their views on the economy and monetary policy.
Last year, Mr. Bernanke used his remarks here to provide the first substantial indication that the Fed intended to renew its economic aid campaign. The central bank went on to buy $600 billion in Treasury securities between November and June, increasing its total portfolio of Treasuries and mortgage securities to more than $2.5 trillion.
This year, Mr. Bernanke noted that the nation faces significant challenges, including huge amount of unemployment and an unsustainable federal debt. But the speech marked a return to the Fed’s position earlier this year that it has largely exhausted the power of monetary policy and that the rest of government must do more through fiscal policy.
“Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” Mr. Bernanke said.
While offering his standard disclaimer that the Fed would take any steps necessary to help the economy, he notably omitted any description of possible measures. He did say, however, that a scheduled meeting of the Fed’s policy-making committee in late September would be extended to two days from one day “to allow a fuller discussion.”
Article source: http://feeds.nytimes.com/click.phdo?i=d870d37a4042de9b95db100c8f3bb9dd
Speak Your Mind
You must be logged in to post a comment.