WASHINGTON Federal Reserve Chairman Ben Bernanke trekked to Capitol Hill on Wednesday to caution Senate lawmakers on the economic dangers of the looming "fiscal cliff," the nearly $600 billion in planned spending cuts and tax hikes that will bite at the start of next year unless lawmakers act.
Bernanke, who has publicly warned that dawdling by lawmakers was putting the U.S. economy in peril, spoke to members of the Senate Finance Committee for about an hour behind closed doors in a meeting requested by the panel chairman, Democrat Max Baucus.
"I believe strongly that nothing of consequence is ever solved when somebody tries to do something alone. You got to work together. My whole goal here is to get senators working together and it is happening," Baucus said after the meeting.
Bernanke declined to comment.
Last week, the Fed announced a new, open-ended round of bond buying and pledged to hold short-term interest rates at rock- bottom levels longer than previously stated in an effort to shore up the lackluster U.S. economic recovery.
Bernanke also said then that the Fed could not solve the economy's problems alone.
"If the fiscal cliff isn't addressed, as I've said, I don't think our tools are strong enough to offset the effects of a major fiscal shock, so we'd have to think about what to do in that contingency," he said at a news conference last Thursday following a meeting of Fed policymakers. "It's really important for the fiscal policymakers to, you know, work together to try and find a solution for that."
Low tax rates enacted in 2001 and 2003 are to expire on December 31, and $100 billion in automatic spending cuts are scheduled for early January. But lawmakers are putting off action until after the November 6 congressional and presidential elections.
Failing to prevent the sharp fiscal tightening at the start of the year could push the economy into recession, according to the non-partisan Congressional Budget Office.
Members of both parties are waiting to move until they see how much political edge they gain from the elections.
Democrats want to let tax rates rise for the wealthiest Americans, while Republicans want to extend current lower tax rates for all income groups.
Lawmakers are expected to leave town this week and not return until after the elections.
(Reporting by Kim Dixon and Rachelle Younglai; Editing by Leslie Adler and Dan Grebler)