Federal Reserve Chairman Ben Bernanke signaled to senators on Tuesday that more quantitative easing measures might be taken and urged lawmakers to not dawdle in addressing the nation’s fiscal woes.
In testimony before the Senate Banking Committee as part of the Fed’s semiannual report to Congress on monetary policy issues, Bernanke said that “reflecting its concerns about the slow pace of progress in reducing unemployment and the downside risks to the economic outlook,” the Federal Open Market Committee (FOMC) “made clear at its June meeting that it is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
Bernanke told lawmakers that the two areas of gravest concern—and biggest risks to the nation’s recovery—are the sovereign debt and banking situation in Europe “that remains unresolved and that poses a drag on the U.S. economy,” as well as the U.S. fiscal crisis. “Congress, in the short term, should address the debt limit and, in the medium term, address fiscal sustainability,” he told lawmakers.
Jim O’Sullivan, chief U.S. economist for High Frequency Economics, says that Bernanke “does not seem ready to ease again” as soon as the next FOMC meeting on July 31-Aug. 1. However, he says, “we expect the Fed will ease again before year-end.”
Addressing the nation’s “fiscal cliff,” in which spending cuts and tax increases must be addressed by year-end, Bernanke said that a combination of allowing all of the Bush tax cuts as well as payroll tax cuts to expire along with the sequestration issue will result in a “shock of 4.5% of GDP.”