Federal Reserve chairman Ben Bernanke sketched a bleak picture of the US economy and warned it will darken further if Congress doesn’t reach an agreement soon. Without an agreement, tax increases and deep spending cuts would happen at year's end. Bernanke noted what the congressional budget office has warned: A recession would occur, and 1.25 million fewer jobs would be created in 2013.
The Fed is prepared to take action to help the economy if unemployment stays high, he said. He didn’t signal what steps the Fed might take or whether action was imminent.But the Fed chairman made clear his most urgent concern is what would happen if Congress can't resolve its budget impasse before year end. Cuts in taxes on income, dividends and capital gains would expire, along with social security tax cut and businesses tax reductions. Defence and domestic programmes would be slashed. And emergency benefits for the long-term unemployed would cease.
All that “would greatly delay the recovery that we’re hoping to facilitate,” he said, near the end of two hours of testimony to the senate banking committee while giving his twice-a-year report to Congress. He will testify on Wednesday before the House financial services committee.
The economy is growing modestly but has weakened,he said.
And job growth is down to a monthly average of 75,000 in Q1 2012 from 226,000 in Q4 2011. Unemployment is stuck at 8.2%. Finally, after growing at an annual rate of 2.5% in the second half of 2011, the economy has slowed to roughly 2% from January to March.