US Federal Reserve chief Ben Bernanke said yesterday that massive cutbacks in spending at all levels of Government was stunting US economic recovery and indicated that the central bank’s monetary stimulus policies will continue.
Facing strong criticism from Republicans, Bernanke delivered his semi-annual monetary policy report to the House of Representatives committee on financial services.
His appearance could be his very last before the committee, Chairman Jeb Hensarling noted, as Bernanke’s second term expires later this year.
Hensarling set the stage with an attack on Bernanke and the Democratic Obama administration, whom he charged were responsible for slack economic growth. The US economy grew at an annualized rate of 1.8 per cent in the first quarter — slower than initially projected but much faster than the 0.4 per cent expansion of late 2012.
Bernanke countered that fiscal constraints at the federal, state and local levels had cost the economy 600,000 jobs, presenting a major drag on consumption, growth and employment.
“Congress has not addressed a lot of the long-run issues where sustainability can be achieved,” Bernanke said.
With the Fed’s benchmark interest rates still near zero, Bernanke insisted that the only option to promote economic recovery was continuation of 85 billion dollars in monthly purchase of Government bonds.
Hensarling charged that the Fed’s “risky and unprecedented asset purchases” were putting a heavy burden on future generations and hampering economic growth. He said that the extraordinary policies needed to boost the economy out of the financial crisis of 2008 had become ordinary.
The Fed policy is intended to force investors to put their money into the private economy instead of safe-haven government bonds, and to maintain downward pressure on long-term interest rates.
“With unemployment still high and declining only gradually, and with inflation running below the (Federal Open Market Committee’s) longer-run objective, a highly accommodative monetary policy will remain appropriate for the foreseeable future,” Bernanke said.
Hensarling was critical of how Wall Street hangs on Bernanke’s every word, citing a recent strong stock rally after the Fed chairman’s remarks, “The markets’ recent extreme volatility... is not healthy for our economy.” Democrat Maxine Waters noted that 11 million US workers remain unemployed, and supported Bernanke’s lax monetary policies. US unemployment remains stable at 7.6 per cent, and Bernanke noted that the economy has added about 200,000 jobs a month so far this year.
“Despite these gains, the jobs situation is far from satisfactory, as the unemployment rate remains well above its longer-run normal level,” Bernanke said.
He warned that the economy remains “vulnerable” to unanticipated shocks, such as slower global growth and government spending austerity in Europe and other countries.
Another round of legislative wrangling between Republicans and the Democratic Obama administration over the debt ceiling could also hamper the recovery, Bernanke said.