Bernake Slams Congress for Harming Economy
By BINYAMIN APPELBAUM
Published: August 26, 2011
JACKSON HOLE, Wyo. — The Federal Reserve chairman, Ben S. Bernanke, said Friday that the political battle this summer over the federal government’s borrowing and spending had disrupted financial markets “and probably the economy as well.”
In remarks that went well beyond his previous calls for Congress and the White House to address the nation’s long-term fiscal challenges, Mr. Bernanke suggested the process itself was broken.
“The country would be well served by a better process for making fiscal decisions,” he said.
Mr. Bernanke said he remained optimistic about future growth — he gave no indication that the Fed would increase its economic aid programs, though he said the central bank’s policy-making board would revisit the issue at a scheduled meeting in September — but he warned that the government had emerged as perhaps the greatest threat to recovery.
“The quality of economic policy-making in the United States will heavily influence the nation’s long-term prospects,” Mr. Bernanke said in the much-anticipated speech, delivered at a policy conference held each August here at a resort in Grand Teton National Park.
The turn toward stronger language was welcomed by some lawmakers and observers of the partisan battle that has pitted Republicans seeking to reduce the federal debt through spending cuts against Democrats arguing for a mix of cuts and increases in revenue.
Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, described Mr. Bernanke’s remarks as “an emergency intervention.”
“It was great to hear him weigh in so strongly,” said Ms. MacGuineas. “He’s saying what needs to be said, and hopefully people will listen because of the messenger.”
But the Fed chairman has no authority over fiscal policy. While he has advised Congress and the administration to make hard choices to bring down spending and deficits, his comments have held little sway in the deliberations.
A deal reached earlier this month to raise the amount the government can borrow, in exchange for spending cuts of at least $2.1 trillion, would not reduce the debt to a level most economists consider sustainable, and the political brinksmanship preceding the deal led Standard & Poor’s to remove long-term Treasury securities from its list of risk-free investments.
The battle now is shifting to a special Congressional committee that will negotiate the details of those cuts. President Obama plans to deliver a speech after Labor Day detailing proposals for job creation and spending cuts intended to influence the work of that committee.
On Capitol Hill, Democrats seized on the Fed chairman’s remarks to criticize Republicans for what they described as intransigence during the debt ceiling negotiations.
Representative Steny H. Hoyer of Maryland, the Democratic whip, said in a statement, “I believe that Federal Reserve Chairman Bernanke was correct today when he observed that partisan brinksmanship over the debt limit damaged financial markets and the American economy.”
The White House, while declining to address Mr. Bernanke’s remarks specifically, chimed in. “The president has repeatedly expressed in his own right his frustration with the dysfunction and the partisan rancor that we’ve seen on Capitol Hill that has interfered with the government’s ability to address these challenges,” said Josh Earnest, a White House spokesman.
Republicans, however, offered little response. And market reaction was muted. Stocks fell in early trading, then gradually recovered. The Standard & Poor’s 500-stock index rose 1.5 percent and the Dow Jones industrial average rose 1.2 percent to close at 11,284.54. Friday’s speech was eagerly anticipated because Mr. Bernanke and his predecessors have made a habit of coming to this conference, hosted by the Federal Reserve Bank of Kansas City, to clarify their views on the economy and monetary policy.
The Fed announced earlier this month that it intended to hold short-term interest rates near zero until at least the middle of 2013, a reflection of its forecast that growth will not be fast enough during that period to drive up wages and prices. Many investors had viewed that announcement as a potential prelude to further steps. More than 25 million Americans cannot find full-time jobs, and the government said Friday that the economy expanded at an annual pace of 0.7 percent during the first half of the year, down from an earlier estimate of 0.8 percent.
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