Fed Chair: Economic Impact Of GOP Cuts Will Be Less Painful Than Reports State

Federal Reserve Chair Ben Bernanke told Congress Tuesday that recent reports that warn economic recovery will be significantly stalled if proposed cuts by the GOP go through are overstated.

Last week, a report from Goldman Sachs claimed that the cuts would cut growth by 2 percent and another released this week by Moody’s Analytics warned that 700,000 jobs could ultimately be eliminated by the Republican attempt to rein in spending.

“We get smaller impact than that,” Bernanke told the Senate Banking Committee of the Fed’s in-house analysis.

However, the White House is still opposed to the $100 billion in cuts proposed by the Republican controlled House. President Barack Obama has indicated he will veto a spending bill that includes such deep cuts and OMB Director Jack Lew said that the reductions would be a mistake and ultimately not make much of an impact on the nation’s debt.

The 111^th Congress was unable to pass a budget for fiscal year 2011, instead opting to let 2010 spending levels carry over into the next Congress. However, federal spending is scheduled to run out this Friday without Congressional action. Currently, both chambers are considering a measure to extend funding, sans $4 billion, for two weeks while they craft a more enduring budget proprosal.

Bernanke: Unemployment Stunting Economic Growth

By Brandon Kosters - Talk Radio News Service

Fed Chairman Ben Bernanke delivered his Semi-annual Monetary Policy Report to Congress today. Bernanke predicted an unemployment rate between 7-7.5 % by the end of 2012, and a GDP increase of 3-3.5% by the end of this year, with marginal increases over the course of the next two years.

He said that inflation is currently less than 1%, and does not expect it to increase signifigantly over the course of the next two years.

Bernanke expressed concern over the nation’s current high unemployment rate of 9.5%, and the degree to which it has limited household spending.

Bernanke added that in addition to its immediate adverse effects, short-term unemployment can easily lead to long-term unemployment, as workers’ skills “erode,” and certain skill-sets become economically obsolete.

Bernanke Warns Large Deficits Could Unhinge U.S. Economy

Although consumer spending in some areas including auto sales are up so far this year, the U.S. should be very concerned about rising deficits, said Federal Reserve (Fed) Chairman Ben Bernanke on Wednesday.

Without a curb in government spending, the nation could experience unsustainable deficits in the range of four-to-nine percent of Gross Domestic Product (GDP) by 2020, Bernanke warned during a hearing before the Joint Economic Committee. Though the job market should rebound slightly in the coming years, Congress must find ways to address the debt level, he said.

"Although sizeable deficits are unavoidable in the near term, maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance."

While he reminded the committee that home sales for 2010 are not where they need to be, Bernanke said that given recent gains in both GDP growth and hiring in sectors such as manufacturing, it is evident that recovery is underway, and will continue modestly going forward. When asked how such projections will affect interest rates, which have been kept at historically low levels for several months, Bernanke said that would depend on a number of things.

"At some point, the markets will make a judgment...[about] our political will to achieve longer-term sustainability," Bernanke told Sen. Sam Brownback (R-Kan.). "At that point interest rates could go up and that would be, of course, a negative for economic growth and recovery. We don't know when that point would be reached."

Despite low levels of lending, the Fed, said Bernanke, is encouraging banks to continue building up capital. Acknowledging that "sluggish" loan demand coupled with conservative lending has impacted businesses looking to receive credit, Bernanke said he is hopeful that the Fed's bank supervision won't "impede sound lending," or get in the way of banks finding a suitable balance between lending and liquidity.

Bernanke was peppered with questions about a financial regulatory reform bill making its way through the Senate. Specifically, Bernanke was asked to judge the proposed Consumer Financial Protection Agency (CFPA), a key pillar of reform, that would act as a watchdog for individual consumers, and would likely be housed inside the Fed.

"I understand why people would be concerned [over its location]," Bernanke said, adding that there are a few items within the legislation that must be clarified before he can offer a more detailed analysis. For example, the question of how the CFPA would be funded must be answered by Congress, he said.

Bernanke Says Recession Is Through

Leah Valencia, University of New Mexico-Talk Radio News Service

Federal Reserve Chairman Ben Bernanke announced the end of the recession Tuesday, but conceded that the U.S. will continue to feel its effects.

“From a technical perspective, the recession is very likely over at this point," he said. “[But] it is still going to feel like a very weak economy for some time,” said Bernanke during a speech at the Brookings Institute.

Bernanke warned that though the U.S. is leaving the recession behind, unemployment and low wages will continue to take their toll. He added that markets will remain weak through 2010, because economic growth will not be strong enough to create jobs.

“Unemployment will be slow to come down,” he said. “It will come down, but it may take some time.”

The bankruptcy of the Lehman Brothers occured exactly a year before Bernanke’s speech on Tuesday, marking the worst phase of the global financial crisis.

Bernanke said regulatory reform is needed to ensure that a crisis such as this does not reoccur.

“This has just been too big of a calamity and too serious of a problem.”

President Barack Obama delivered a similar message during a street to New York's financial community Monday.

While there has been some debate among policymakers over whether effective regulatory reform can make it through Congress, Bernanke remarked Tuesday that he was hopeful.

“I remain pretty optimistic that... reform will be forthcoming,” Bernanke said.

Bernanke: Financial System Strained But Undergoing Stabilization

By Courtney Ann Jackson- Talk Radio News Service

Financial conditions are strained but have improved, according to the Federal Reserve Chairman Ben Bernanke's semiannual Monetary Policy Report to Congress.

“Today, financial conditions remained stressed, and many households and businesses are finding credit difficult to obtain. Nevertheless, on net, the past few months have seen some notable improvements,” Bernanke said Wednesday before the Senate Committee on Banking, Housing, and Urban Affairs.

Bernanke cited the narrowing spread of interest rates in short-term money markets, adding that equity prices are nearly beginning to recover to their levels from the end of last year. Bernanke also noted that the banks have raised “significant amounts of new capital.”

According to the Chairman, many of these improvements are due, in part, to policy actions by the Federal Reserve to encourage the flow of credit.

“Some banks are still short of capital, other banks are concerned about future losses, they’re concerned about the weakness in the economy and the weakness of potential borrowers,” said Bernanke. “Banks should be making loans to credit-worthy borrowers. It’s in their interest, the bank’s interest, as well as the interest of the economy and we’re working with banks to make sure they do that.”

During questioning, Bernanke explained to Committee members that consumer protection, transparency, and accountability continued to be priorities for the Federal Reserve.