Federal Reserve Chairman Ben Bernanke is sounding alarms for a second day on Capitol Hill, warning lawmakers they may push the U.S. economy into recession unless they back away from an impending "fiscal cliff."
The fragile recovery, already showing obvious signs of weakness, will be severely damaged by spending cuts and tax increases that will automatically kick in at the start of 2013, the nation's top central banker told the House Financial Services panel Wednesday morning.
Congress must act now to restore confidence amid a worrisome drop in business spending and new hiring, according to the Fed chief.
"Congress is in charge here, not the Federal Reserve," Bernanke repeated, without suggesting specific policies.
Bernanke assured that the Fed has further easing measures at its disposal, but cautioned that any additional support would be wasted unless Congress can reach a compromise.
The nation needs to put on a more sustainable fiscal path, but pushing fiscal reform during the tenuous recovery would be a disaster, Bernanke said amid squabbling from lawmakers on both sides of the aisle.
In yesterday's most interesting exchange within the Senate Banking Committee hearing, NY Senator Chuck Shumer admitted that Congress is unlikely to break their impasse. He pleaded with Bernanke to "get to work" in crafting a plan to support the economy with further stimulus.
The tone was even more rancorous in the early portion of today's hearing. Rep. Spencer Bachus (R- Ala.), chairman of the House panel, began by blasting Democrats for begging Bernanke and the Fed to embark on a third round of quantitative easing.
Conservatives have argued that the previous two asset purchase programs did little to jump start the economy and how only cost the central bank its credibility in fighting potential inflation.
"The truth is the Federal Reserve cannot rescue Americans from the consequences of failed economic and regulatory policies passed by Congress and signed by the president," Bachus said.
Bernanke thinks the economy can perk up again if Congress can solve the fiscal issue.
"At this point we don't see a double-dip recession — we see continued moderate growth," Bernanke told the panel.
by RTT Staff Writer
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