WASHINGTON, June 7 Below are highlights from the question and
answer session during Federal Reserve Chairman Ben Bernanke's appearance on
Thursday before the congressional Joint Economic Committee.
BERNANKE ON ECONOMIC IMPACT OF FISCAL CLIFF:
"Everything we understand about fiscal policy suggests it would be a
significant short-term effect (on growth), yes. ...
"I am telling you - try to avoid a situation where you have a massive cut in
spending and an increase in taxes all hitting at one moment, as opposed to
trying to spread them out over time in some way such as to create less
short-term drag on the economy."
BERNANKE ON CHINA GROWTH SLOWDOWN:
"There has been some slowing there, we watch it very carefully."
BERNANKE ON GLOBAL SLOWDOWN AND DEFLATIONARY RISKS:
"There are some signs certainly in Europe, China cut interest rates today,
some of the emerging markets have seen some slowdowns, so there are certainly
some signs of a global slowdown and we are trying to assess how important those
are and what implications they have for the United States."
"I would say at this juncture, with respect to deflation specifically, we
think deflation at this point is probably a pretty low probability risk."
"At the moment, inflation seems to be pretty stable, close to 2 percent. We
haven't seen much indication of declining inflation, particularly when you look
at non-commodity prices or look at expectations. That particular concern right
now is not very much at the forefront of our concerns."
BERNANKE ON NEED FOR BALANCED PLAN TO CUT BUDGET DEFICIT:
"You don't want to just do short-run stuff and ignore the long run. You
don't want to just do long-run stuff and ignore the short run. You need a
balanced program, one which at least avoids ... derailing the recovery in the
short term, but combines that with a strong and credible plan for reducing the
deficit over the medium term."
"I think that's the best policy. It may be very difficult to achieve, but in
principle that would be the best way to go."
BERNANKE ON THE OUTLOOK FOR JOBS MARKET:
"The pace of improvements in the labor market from last summer through March
was actually surprisingly strong given the relatively tepid rate of growth of
overall economic activity. It was a puzzle that we were trying to understand.
"One hypothesis is that there was a burst of extra of hiring that reflected
a reversal of what may have been excessive layoffs during the recession period.
Firms felt they had actually laid off too many workers....
"If that was true, then the implications are that if growth stays near the
potential rate of growth, say 2 to 2-1/2 percent, then the improvement in the
unemployment rate going forward might be a quite limited, so that's again a
question we have to really think about."
BERNANKE ON BRINKMANSHIP OF LAST SUMMER DEBT LIMIT:
"The brinkmanship of last summer over the debt limit had very significant,
adverse effects for financial markets and for our economy. Again, it knocked
down confidence quite noticeably."
"I urge Congress to come to an agreement on that well in advance so not to
push us to the twelfth hour. Again, I think that trying to put our fiscal
situation on a sustainable basis is perhaps one the most important things that
Congress is working on."
BERNANKE ON THE HOUSING MARKET:
"The housing market looks to be stabilizing which if true would be good news
and going forward it would helpful to the recovery."
BERNANKE ON PROVIDING PRINCIPAL REDUCTION IN HOUSING:
"The board of governors does not have an official position on principle
reduction versus other means of modifying mortgages or otherwise avoiding
foreclosure. I think as a practical matter, if there is limited resources
available, you would want to consider whether say, for example, reducing
payments is more effective in some cases than reducing principal owed. So I
think there are some important questions there. ... While we all focus on the
help that avoiding unnecessary foreclosures gives to the homeowner, if
successfully done it also reduces the losses to the lender, it supports the
housing market and that in turn helps the broader economy."
BERNANKE ON RISKS FROM EUROPE:
"The risks have waxed and waned. The crisis has been going on for more than
two years and there have been periods of greater and lesser intensity. ...
Certainly it is at a point where it is important for European leaders to take
additional steps to contain the problem."
BERNANKE ON PAST QE MEASURES:
"Our analysis is that quantitative easing programs we did in the past did
ease needs of financial conditions, they lowered interest rates, they lowered
the spreads between private rates and government rates."
"We lowered mortgage rates, raised stock prices which increased therefore
wealth effects for consumers, so in general, we believe that while some may
think these effects are less powerful than they were for example in 2009, we
believe that potentially that these sorts of measures would still add some
additional accommodation and additional support to the economy."
BERNANKE ON FED HAS OPTIONS, BUT URGES CONGRESS TO ACT:
"I recognize that rates are quite low, so that clearly is a consideration. I
do think that we do have methods, we do have tools that would allow us to get
further accommodation in economy and provide some support."
"It's not quite the same thing to say the problem of the U.S. economy is not
lack of financial accommodation. It's a different thing to say that and say
that, even if the main problems are coming from elsewhere, that the Federal
Reserve might provide some support from using the tools that it has."
"I do want to say, and I've said this before, that monetary policy is not a
panacea. It would be much better to have a broad-based policy addressing a whole
variety of issues..."
"I'd be much more comfortable in fact if Congress would take some of this
burden from us and address those issues."
BERNANKE ON WHETHER FED EASE AT NEXT FOMC MEETING?
"The weakness in labor markets in the last couple of months may reflect the
end of the catch-up period in which employers were offsetting the very sharp
declines in employment that happened at the end of the recession. If that
analysis is correct, then going forward in order to see continued improvement in
the unemployment rate, we will need to see growth at or above the trend rate of
growth. So that is the essential decision, the central question we have to look
at - will there be enough growth going forward to make material progress in the
"My colleagues and I are still working on our own assessments. The staff are
working on their updated forecasts. We will have a new round of economic
projections by all participants between now and the end of the meeting ..."
"The key question that we will be facing is: Will economic growth be
sufficient to achieve continued progress in the labor market?"
BERNANKE ON BUSH TAX CUTS AND FISCAL CLIFF:
"The potential expiration of the so-called Bush tax cuts - the 2001-2003 tax
cuts - is the single biggest item in the fiscal cliff and would have, if
everything else held constant ... an adverse effect on spending and growth in
the economy that would be significant.