Federal Reserve policymakers expect “a somewhat slower pace of economic growth over coming quarters” than they had been forecasting just four months ago, Chairman Ben Bernanke told Congress this hour.
There has been, he added in a statement prepared for the Joint Economic Committee, a “deterioration in the economic outlook over the summer.”
– “It is clear that, overall, the recovery from the [2008-09 financial] crisis has been much less robust than we had hoped.”
– “Incoming data suggest that … persistent factors … continue to restrain the pace of recovery.” Those include: cautious consumers, a housing sector dealing with an “overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and the large number of ‘underwater’ mortgages” and tight credit for “households, small businesses, and residential and commercial builders.”
– “Another factor likely to weigh on the U.S. recovery is the increasing drag being exerted by the government sector. Notably, state and local governments continue to tighten their belts by cutting spending and employment in the face of ongoing budgetary pressures, while the future course of federal fiscal policies remains quite uncertain.”
On the federal government’s fiscal condition, Bernanke again said that action needs to be taken. And in his prepared testimony he said that:
“I would submit that, in setting tax and spending policies for now and the future, policymakers should consider at least four key objectives. One crucial objective is to achieve long-run fiscal sustainability. The federal budget is clearly not on a sustainable path at present. The Joint Select Committee on Deficit Reduction, formed as part of the Budget Control Act, is charged with achieving $1.5 trillion in additional deficit reduction over the next 10 years on top of the spending caps enacted this summer. Accomplishing that goal would be a substantial step; however, more will be needed to achieve fiscal sustainability.
“A second important objective is to avoid fiscal actions that could impede the ongoing economic recovery. These first two objectives are certainly not incompatible, as putting in place a credible plan for reducing future deficits over the longer term does not preclude attending to the implications of fiscal choices for the recovery in the near term.
“Third, fiscal policy should aim to promote long-term growth and economic opportunity. As a nation, we need to think carefully about how federal spending priorities and the design of the tax code affect the productivity and vitality of our economy in the longer term.
“Fourth, there is evident need to improve the process for making long-term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy.
“In sum, the nation faces difficult and fundamental fiscal choices, which cannot be safely or responsibly postponed.”