Fed chairman urges action on fiscal accord

New York TimesNovember 20, 2012 

Federal Reserve Chairman Ben S. Bernanke again Tuesday strongly urged Congress to ward off the sudden and severe combination of tax increases and federal spending cuts coming at the end of the year.

“Uncertainties about the situation in Europe and especially about the prospects for federal fiscal policy seem to be weighing on the spending decisions of households and businesses as well as on financial conditions,” Bernanke said in a speech at the New York Economic Club. “Such uncertainties will only be increased by discord and delay.”

Bernanke summarized the Fed’s recent actions to purchase additional agency mortgage-backed securities and continue extending the maturity of its Treasury holdings.

Asked after the speech whether the Fed would provide specific unemployment and inflation thresholds that would prompt officials to tighten monetary policy, as some analysts have been expecting, Bernanke said officials were considering this and he did not want to “front run” those discussions. He said one advantage of this approach would be to better distinguish between how the Fed thinks the economy is going to evolve and how the Fed will react to conditions.

Distilling monetary policy

But he said also that monetary policy is a complex process and that officials have “an enormous amount of material” prepared for them at every meeting that might be difficult to boil down to just two or three numbers that represent when officials would begin to tighten policy. Even if they could do that, he said, it was unclear whether there would be sufficient agreement on the committee about which numbers would initiate a policy change.

Analysts also have been expecting that the Fed will start replacing its current program to extend the maturity of its Treasury holdings with straight asset purchases of Treasury securities. In the prepared text of his speech, Bernanke did not address this question.

He said that while the details of a congressional agreement to avert a so-called fiscal cliff were important, so were speed and a general impression of a functional and cooperative legislative branch.

“The economic confidence of both market participants and the general public likely will also be influenced by the extent to which our political system proves able to deliver a reasonable solution with a minimum of uncertainty and delay,” he said.

News & Observer is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service