WASHINGTON — Federal Reserve Chairman Ben Bernanke told Congress on Thursday that the fragile economy still needs government stimulus spending to strengthen the recovery and help reduce unemployment.
Testifying before the House Financial Services Committee, Bernanke urged lawmakers to come up with a credible plan to reduce the government’s record-high budget deficits, but he said they shouldn’t cutspending or raise taxes in the near future.
“I believe we should maintain our stimulus in the short term,” Bernanke said as he spoke about the economy’s challenges for a second day on Capitol Hill.
Bernanke again said the Fed is prepared to take new steps to bolster the recovery if needed.
“We are ready and we will act” if the economy doesn’t continue to improve, Bernanke told the House panel.
But he refrained from repeating comments made earlier in the week that he didn’t anticipate the Fed taking new action in the near term. Those comments to the Senate Banking Committee sent stocks tumbling Wednesday. The market on Thursday recovered those losses after another strong batch of earnings revived optimism on Wall Street.
Bernanke is under growing pressure to keep the recovery going because there’s little appetite in Congress to provide a major new stimulus package.
The Fed chief made his comments as the panel’s highest-ranking Republican, Rep. Spencer Bachus of Alabama, and other Republican members complained about the effectiveness of President Barack Obama’s $862 billion stimulus package. That has increased government spending and cut taxes at a time when most Republicans and some Democrats are worried aboutthe government’s exploding red ink.
“The economic recovery is anemic at best,” Bachus said, arguing that the stimulus package hasn’t delivered.
Bernanke’s remarks also come as tax cuts by President George W. Bush are set to expire at the end of this year.
The economy is slowing asconsumers cut back spending under the strains of 9.5 percent unemployment, lackluster wage gains, sagging home values and smaller nest eggs.
Businesses are wary of hiring and expanding because they are uncertain about the strength of their sales and the strength of the rebound. Some private economists fear the recovery could fizzle.
If the recovery were to show serious signs of backsliding, the Fed could revive programs to buy mortgage securities or government debt. It could cut to zero the interest rate paid to banks on money left at the Fed, although there are some technical difficulties raised by such a move, Bernanke said. The Fed also could create a program to spark more lending to businesses and consumers in a bid to encourage them to spend and strengthen the economy.
Rep. David Scott, D-Ga., complained about a lack of “aggressiveness” on the part of the Fed to tackle high unemployment. And Rep. Gary Peters, DMich., wondered why the Fed wasn’t taking new steps now to stimulate the economy.
Despite growing threats to the recovery, Bernanke said the Fed continues to believe the economy will grow modestly this year and avoid sliding back into recession. Some disappointing economic data hasn’t been bad enough for Fed policymakers to “radically change our outlook,” he said.
Business, Pages 25 on 07/23/2010