WASHINGTON (AP) -- Ben Bernanke is urging lawmakers to balance their desire to cut deficits with policies that could help boost the weak economy in the short run.
Bernanke said Thursday in prepared testimony for the House Budget Committee hearing that he recognizes that huge budget deficits represent a serious threat to the economy.
"Even as fiscal policymakers address the urgent issue of fiscal sustainability, they should take care not to unnecessarily impede the current economic recovery," Bernanke says. "Fortunately, the two goals ... are fully compatible."
The Federal Reserve chairman is testifying a week after the Fed
signaled that a full recovery could take at least three more years. As a
result, the Fed said it doesn't plan to raise its benchmark interest
rate from a record low before late 2014 at the earliest.
Bernanke is also appearing two days after the
Congressional Budget Office estimated that the deficit will top $1
trillion for a fourth straight year and could stay around that level for
years.
Republicans have been critical of the Fed's
efforts to support the economy. Many have argued that keeping rates too
low for too long could escalate inflation. And they've stressed that
cutting government spending and lowering taxes are necessary to boost
growth.
The hearing is sure to be contentious, and the toughest questions could come from Chairman Paul Ryan, a Republican from Wisconsin.
At a hearing last year after Republicans won
control of the House, Ryan told Bernanke that "many of us fear monetary
policy is on a difficult track."
Monetary policy refers to the Fed's use of interest rates to try to boost or slow the economy.
At the time, Ryan also expressed concern that
the Fed's bond-buying programs could trigger inflation or fuel
speculative buying of stocks or other assets. The Fed's bond purchases
were intended to further drive down long-term rates to encourage more
borrowing and spending by consumers and businesses.
Ryan made his comments at a time when energy
and food prices were rising quickly. Inflation has moderated since then,
and Bernanke has maintained that it doesn't threaten the economy.
The two leaders also offered contrasting views
last summer over how to handle high budget deficits. Bernanke warned
Republicans that threatening to block a pending increase in the nation's
borrowing limit could hurt the economy. He said the debt ceiling was
the "wrong tool" for trying to push federal spending cuts through
Congress.
Ryan countered at the time that using the
debt-ceiling vote as leverage to win meaningful deficit reductions was a
valid approach.
This time, Bernanke will likely point to some
economic improvements. Factories are making more goods. Americans are
buying more cars. The unemployment rate is near its lowest level in
nearly three years. And employers have produced six straight months of
solid hiring.
Still, growth was only modest in the final
three months of last year. And consumers will likely slow their spending
if hiring and pay increases don't strengthen.
A key reason the deficit has surged in the past
four years is that the government collected less tax revenue. In part,
that's because the economy has yet to regain the millions of jobs lost
during the Great Recession.
And the government has had to spend more on
emergency unemployment benefits and efforts to boost growth, such as the
Social Security tax cut that will expire in February unless Congress
extends it.
The Fed has also taken extraordinary measures
during and after the recession to try to help the economy recover. In
June, it completed its second round of bond buying.
At a news conference after last week's Fed
meeting, Bernanke said a third round of bond buying might be necessary.
Some economists think the Fed could announce more bond buying as soon as
its next meeting in March.
Liveblog: http://blogs.marketwatch.com/election/2012/02/02/live-blog-of-bernanke-hearing-on-budget/
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