Ben Bernanke: Time to Shift from Stimulus to Federal Deficit

Article excerpt

Economic recovery has progressed far enough for policymakers to turn their attention from stimulus to reducing the federal deficit, Fed Chairman Ben Bernanke testified Wednesday.

It's a tipping point that Washington has talked about for a long time - and it's approaching fast, Federal Reserve Board Chairman Ben Bernanke indicated on Wednesday.

The point in question is the moment at which the recovery appears to have advanced far enough for policymakers to turn their attention to another crucial economic priority: deficit reduction.

A credible plan to reduce America's huge fiscal imbalance could boost economic confidence while reducing long-term interest rates, said Mr. Bernanke in testimony to the Joint Economic Committee of Congress.

"Addressing the country's fiscal problems will require difficult choices, but postponing them will only make them more difficult," he said.

Bernanke did not say what he thought those choices should be - or, more precisely, how the US should mix revenue increases and spending cuts. But his message was clear, according to Brian Bethune, chief US economist of HIS Global Insight.

'A serious long-term threat'

Bernanke indicated "the current path of fiscal policy is a serious long-term threat to the health of the national economy - there is no single issue that is more worthy of political sacrifice from elected representatives than this one," said Mr. Bethune in a statement.

In his remarks, the Fed chief struck a moderately optimistic note about the current state of the US economy. Recovery began in the second half of last year, boosted by government stimulus spending, according to Bernanke. But with stimulus funds set to diminish in coming months, it's the private sector that will now have to take the lead in stoking the engine of US GDP.

That private-sector boost appears to be happening, said Bernanke, as consumer spending has increased in the first months of 2010. In particular, car sales were strong in March as manufacturers offered another round of purchase incentives. …


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