Federal Reserve Chair Ben Bernanke testified before the Joint Economic Committee today and very subtly blamed Congress for the continuing sluggishness in the economy.
He told the committee that the ability of the Fed to use monetary policy to stimulate the economy is negated by Congressional fiscal policy:
Fiscal policy “has become significantly more restrictive,” he said. “In particular, the expiration of the payroll tax cut, the enactment of tax increases, the effects of the budget caps on discretionary spending, the onset of the sequestration, and the declines in defense spending for overseas military operations are expected, collectively, to exert a substantial drag on the economy this year.”
One of the members of the area congressional delegation - Kevin Brady - is chair of the committee and he among a few others are concerned about the long term debt problem given the degree of spending that occurred after the recent financial crisis. Bernanke argued that focus on debt is premature and is leading to policies that continue to limit economic growth.
Bernanke defended the Fed’s policies and argued that the problem isn’t that the Fed is doing too much but that fiscal policymakers are doing too little. “Mr. Chairman, first of all, the slowness of the recovery can be explained by a number of important headwinds, including the aftereffects of the financial crisis, developments in Europe, the problems with the housing market and, very importantly, the fact that fiscal policy for the last few years has actually been a significant headwind to recovery rather than a supporting tailwind,” Bernanke said. “So I would submit that without monetary policy’s aggressive actions, this recovery would be much weaker than it has been, and indeed if you compare our recovery to that of Europe and other advanced industrial economies, it looks relatively good.”
Bernanke also made clear that he wasn’t looking to downplay the significance of the long-term budget issues. “I fully realize the importance of budgetary responsibility, but I would argue that it’s not responsible to focus all of the restraint on the very near term and do nothing about the long term, which is where most of the problem exists,” Bernanke said in response to questioning from Democratic Minnesota Sen. Amy Klobuchar. “I do think that we would all be better off, with no loss to fiscal sustainability or market confidence, if we had somewhat less restraint in the very near term – this year and next year, say – and more aggressive action to address these very real long-term issues, which threaten within a decade or so to begin to put our fiscal budget on an unsustainable path.”
What is a joint committee? "Committees including membership from both houses of Congress. Joint committees are usually established with narrow jurisdictions and normally lack authority to report legislation. Chairmanship usually alternates between the House and Senate members from Congress to Congress."
For information about the Joint Economic Committee click here. "The Joint Economic Committee (JEC) is one of four standing joint committees of the U.S. Congress. The committee was established as a part of the Employment Act of 1946, which deemed the committee responsible for reporting the current economic condition of the United States and for making suggestions for improvement to the economy. The JEC is chaired by Representative Kevin Brady of Texas."
Video of the hearing can be found here.
