Federal Reserve chairman Ben Bernanke displayed a growing degree of alarm about record federal budget deficits Monday and called for action.
Bernanke said there is “little scope” for reducing the $1.4 trillion budget deficit the next year or two. He warned that “premature fiscal tightening could put the recovery at risk” in remarks to the Rhode Island Public Expenditure Council.
Bernanke said it was “crucially important” to put fiscal policy on a sustainable long-term path. Calling the budgetary threat “real and growing,” he said a “credible plan” is needed to reduce the deficit — possibly employing some kind of fiscal policy rule. He said failing to do so would endanger America’s economic future.
The Fed chief said “expectations of large and increasing deficits” could inhibit current household and business spending by reducing confidence in the longer term or by increasing uncertainty about future tax burdens and government spending.
He said concerns about the government’s long-run fiscal position may also make it more difficult to adjust fiscal policy to current economic conditions.
“Accordingly, steps taken today to improve the country’s longer-term fiscal position would not only help secure longer-term economic and financial stability, they could also improve the near-term economic outlook,” Bernanke said.
— Market News International
