Federal Reserve Chairman Ben Bernanke said lawmakers wary of another round of stimulus could avoid it by addressing their own fiscal policy problems.
“The fiscal issues are a major concern. If Congress addressed those issues, the outlook would be better and would abrogate any need to take future actions,” Bernanke told the Senate Banking Committee Tuesday. “Delaying everything for a year would be a very bad outcome.”
Bernanke said in his prepared testimony that reducing the unemployment rate seems “frustratingly slow,” and warned against lingering risks from Europe and the fiscal cliff quickly approaching stateside.
While Bernanke said fiscal policies are on an “unsustainable path,” he warned against major cuts while the economy was still fragile.
The Congressional Budget Office recently estimated that if the tax increases and spending reductions occurred as scheduled early next year, a “shallow recession” could occur and more than 1 million fewer jobs would be created in 2013.
Housing showed some signs of improvement as home sales trended upward since last summer, Bernanke said. But tight lending standards and negative equity continue to keep many potential homebuyers from owning again.
“On the supply side, the large number of vacant homes, boosted by the ongoing inflow of foreclosed properties, continues to divert demand from new construction,” Bernanke said.
Bernanke gave no hint of another round of quantitative easing said there wasn’t even a consensus on what it would be should the economy worsen.
“There are different types of purchase programs, including Treasurys or mortgage-backed securities that we’re allowed to buy. We could use discount window for lending purposes. We could use communication on future plans. And there’s cutting the interest rate we pay in excess reserves. Each one has cost and benefits,” Bernanke said.
At the last Federal Open Market Committee hearing, Bernanke announced an extension to Operation Twist instead.
