* Bernanke warns of growth hit if tax cuts expire
* Congress should decide before November election
* Bernanke does not comment on January jobs data
By Mark Felsenthal
WASHINGTON, Feb 7 Federal Reserve Chairman
Ben Bernanke on Tuesday warned Congress that putting
off a decision on the fate of expiring Bush administration tax
cuts could unsettle businesses and households, undercutting the
U.S. economic recovery.
With presidential and congressional elections looming in
November, many analysts think Congress is unlikely to act until
the final months of the year. The tax cuts expire on Jan. 1.
Bernanke told the Senate Budget Committee that lawmakers
might not have the luxury of waiting.
"I don't know exactly when the uncertainty would become a
factor, but surely as we get closer to Jan. 1 and Congress has
not given a clear road map for how it plans to proceed, that
would certainly affect planning, business decisions, household
decisions, as they look ahead to the next year," he said.
Bernanke did not go beyond comments he made on the outlook
for the economy and monetary policy he made last week in an
appearance before a House of Representatives panel and did not
comment on a surprising upswing in hiring in January.
Bernanke repeated that the jobs situation had improved
modestly over the past year, but there was a long way to go
before jobs markets return to normal.
Government data released on Friday showed employers added a
surprisingly hefty 243,000 jobs in January, with the jobless
rate dropping to 8.3 percent. It bumped up market expectations
of a January 2014 Fed interest rate hike to a 38 percent chance
from a 28 possibility beforehand.
The second month of solid job growth prompted some Wall
Street firms, including BNP Paribas and Deutsche Bank, to raise
their forecasts for first-quarter U.S. economic growth to an
annual rate of 2.5 percent and 2.8 percent from 2.0 percent.
The Fed cut rates to near zero more than three years ago and
has bought $2.3 trillion in bonds to spur growth. The Fed in
late January said the sluggish recovery likely warranted keeping
rates near zero until the end of 2014, and Bernanke left open
the possibility of another round of asset buying if growth shows
signs of flagging.
However, Bernanke gave no indication of whether the sunnier
jobs picture had changed his views about further asset
purchases, and lawmakers' questions were focused largely on
fiscal topics on Tuesday.
Democrats and Republicans are expected to mostly tread water
on major tax and decisions, leaving voters to decide in November
whether the main focus in 2013 should be continuing to downsize
government spending - as lawmakers tied to the conservative Tea
Party movement have insisted - or to also revamp the tax code in
a way that raises rates and closes loopholes for the rich.
The Congressional Budget Office has said that if all the
Bush tax cuts were allowed to expire, U.S. economic growth would
slow to 1.1 percent in 2013, more than a full percentage point
below where Fed officials expect it to land this year.
Forecasts released by the Fed last month showed most
policymakers at the U.S. central bank expect growth next year to
come in a 2.8 percent to 3.2 percent range, suggesting they
foresee at least some of the tax cuts being extended.
"I want to be very clear that I'm in no way stepping back
from my strong advocacy of maintaining fiscal stability in the
longer term," Bernanke said. "But I think there is a concern
there that this very sharp change in the fiscal position in a
very short time might slow the recovery."
President Barack Obama wants to continue the Bush tax cuts
for the middle class while ending them for upper-tier earners.
Republicans oppose any tax hikes, while saying they want to
reform the entire tax code and lower top rates. The more radical
Republicans want steep spending cuts immediately.
In his testimony, Bernanke coupled his plea that Congress
come up with a credible long-term plan to cut U.S. budget
deficits, with a caution against any steps that could undercut
the still-fragile recovery.
"The more you can demonstrate a will and commitment to
sustainability over the longer term ... the more flexibility
there will be to address near-term concerns relating to the
recovery," he said.
Congress must not push the issue off to "manana," Bernanke
"Just simply promising future action risks at least an
adverse market reaction, an adverse reaction in terms of
confidence and so on," he said.