Bernanke warns steep budget cuts could slow growth



AGENCE FRANCE PRESSE

Published — Wednesday 27 February 2013

Last update 27 February 2013 1:15 am

| نسخة PDF Print News | A A

WASHINGTON: Federal Reserve Chairman Ben Bernanke said yesterday that the US economy still needs the Fed’s stimulus, and warned that looming steep budget cuts could further slow growth.
Stressing that high unemployment remains the key challenge to the economy, Bernanke told a Senate panel that the central bank’s extraordinary $ 85 billion a month bond-purchase program, aimed at holding down long-term interest rates and encouraging investment, was still merited.
The risks of the program — igniting inflation, and spurring a new round of dangerously risky behavior in the financial industry — were being monitored closely and were not significant enough yet to curtail stimulus, he said.
“Highly accommodative monetary policy also has several potential costs and risks,” he said in prepared remarks.
But the Federal Open Market Committee, the Fed policy board, “remains confident that it has the tools necessary to tighten monetary policy when the time comes to do so.”
Bernanke said the $ 85 billion a month quantitative-easing program, known as QE3, was “providing important support to the recovery” while keeping inflation at bay.
The program has boosted the housing market and the production and sales of automobiles and other durable goods, and stimulated the jobs market, he argued.
But with the national jobless rate still at 7.9 percent, Bernanke said, “the job market remains generally weak, with the unemployment rate well above its longer-run normal level.”
“High unemployment has substantial costs, including not only the hardship faced by the unemployed and their families, but also the harm done to the vitality and productive potential of our economy as a whole.”
That harm, he stressed, included reduced government revenues and higher spending, adding to the country’s deficit and debt.
He said the Fed was keeping a close eye on signs of risky behavior arising in the financial system due to the prolonged low interest-rate environment, a worry that was expressed in January by some members of the Federal Open Market Committee, the Fed’s policy board.
However, he said, “to this point we do not see the potential costs of increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more job creation.”
Bernanke said economic growth remained uneven and could be further hurt by the government’s steep budget cuts, or sequester, slated to take effect Friday if politicians cannot craft a more moderate compromise.
“The Congress and the administration should consider replacing the sharp, front-loaded spending cuts required by the sequestration with policies that reduce the federal deficit more gradually,” he said in prepared remarks.
Bernanke cited data from the Congressional Budget Office projecting that the cuts, to be implemented over the remaining seven months of the fiscal year if no moderate substitute program is agreed, would reduce potential economic growth by 0.6 percent.
“Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant.”
Bernanke sought to put a halt to speculation that the Fed could curtail the QE3 bond purchases this year, even before targets for cutting unemployment were achieved.
The minutes of the FOMC’s January meeting showed some members worried about losing control of monetary policy if the high level of bond purchases continued.
Some FOMC members argued that the Fed could be headed toward a dangerous situation where, when it does decide to reel in the program, the move would have little impact on the markets and inflation could run out of control.
“Many participants... expressed some concerns about potential costs and risks arising from further asset purchases,” the minutes said.
But others on the panel insisted that QE3 remain in place until there was substantial progress in reducing joblessness.

What's happening around Saudi Arabia

RIYADH: The Saudi Commission for Tourism and National Heritage (SCTNH) has encouraged businessmen to invest in tourism villages in Asir region.“Tourism villages are considered to be one of the most attractive options in the province,” said Mohammad A...
RIYADH: The General Presidency for Youth Welfare (GPYW) has taken part in serving pilgrims and visitors to the Two Holy Mosques as part of the organization’s voluntary and humanitarian work. In his statement, the head of the Riyadh office, Abdulrahma...
RIYADH: Prince Faisal bin Bandar, governor of Riyadh, opened on Wednesday 20 environmentally friendly entertainment projects with a total area of more than 270,000 sq. meters. Among interesting features of these new parks are replicas of the Eiffel T...
JEDDAH: Children and youths afflicted with cancer in the Eastern Province have launched a campaign against terrorist attacks. The patients, their families and doctors have slammed the attacks, which saw many killed and injured, a local publication re...
RIYADH: The World Assembly of Muslim Youth (WAMY) is a major player when it comes to relief work in countries wrecked by human tragedies, Secretary-General Saleh Al-Wohaibi said on Tuesday.He was addressing some 700 guests at the 13th annual iftar pa...
JEDDAH: The General Committee for the Municipal Elections has issued new regulations to oversee the polls, which will be taking place on Dec. 12, 2015.The rules released on Monday spelled out requirements for council members, list of violations and a...
JEDDAH: The Martyrs Fund has announced that it disburses 75 percent of its annual revenues to helping the needy families of martyrs, the wounded, prisoners of war and missing persons.Approximately 25 percent of the revenues is allocated for further i...
RIYADH: Prince Alwaleed bin Talal, chairman of Kingdom Holdings, has announced that his entire $32 billion fortune would be donated to charity after his death.The prince told reporters at his offices in Riyadh on Wednesday that he would move his asse...
MADINAH: Custodian of the Two Holy Mosques King Salman arrived in Madinah on Tuesday accompanied by several princes and senior officials for his first visit since ascending the throne. He was met at the airport by Madinah Gov. Prince Faisal bin Salma...
JEDDAH: The Council of Ministers has condemned the terrorist attacks in Kuwait, France, Tunisia and Egypt over the past few days.At its weekly meeting chaired by Custodian of the Two Holy Mosques King Salman on Monday night, the Cabinet said that the...
JEDDAH: The father of the suicide bomber who blew himself up in a mosque in Kuwait has blamed “evil” forces for his son’s behavior.Sounding confused and sad, Sulaiman Al-Gabbaa, the father of Fahad Al-Gabbaa, said: “An evil hand has sent my son to hi...
JEDDAH: The Saudi Traffic Department has denied that it is introducing new license plates for cars.It said hackers posted pictures of the supposedly new license plates on its Twitter account on Sunday. The department said the news, which went viral,...
JEDDAH: The Al-Haramain Train project is described as the largest public transportation project in the Middle East. This vital and strategic project is one of the implementation schemes of the mass expansion of the Saudi railway across the country.Th...
JEDDAH: The number of marriages between expatriates and Saudis has dropped 84 percent to 1,928 since the start of this Islamic year that began on Oct. 24, compared to the same period the previous year.The Ministry of Justice said that there were 12,0...
JEDDAH: The General Authority for Civil Aviation (GACA) launched the idea of a project called Watani to link all parts of the Kingdom by air by beefing up activities at important provincial airports.Capt. Abdul Hakim Badar, assistant vice president a...

Stay Connected

Facebook