Federal Reserve Chairman Ben Bernanke Thursday faced a sharply divided Congressional committee looking for ways to boost faltering economic growth.
Sen. Bob Casey, D-Penn., the chairman of the Congressional Joint Economic Committee, said that the employment report for May which was released last week and highlighted a slow-down in growth of job creation shows a clear need for Washington to do more and focus on jobs.
"There are a number of bipartisan actions Congress can take right now," Casey said, citing a transportation infrastructure bill, small business tax cuts and the farm bill as legislative vehicles that could swiftly stimulate employment.
Furthermore, Casey warned of what Bernanke has called the looming "fiscal cliff" of automatic spending cuts and the expiration of tax cuts enacted under the Bush Administration that Casey said could create "significant economic headwinds" in 2013.
However, Casey said that there is both a right way and a wrong way to address the fiscal concerns facing the economy, arguing that while Congress should not increase taxes on the middle class, additional spending through the tax code would be irresponsible.
"Our economy … is still recovering from the great recession," he said. "The labor market still needs help."
He added, "We need to stay focused on promoting a strong economic recovery and that, of course, means jobs."
However, while Rep. Kevin Brady, R-Texas, the vice chairman of the committee, agreed that the nation's economic recovery and employment situation remains "grim," he differed sharply with Casey on what Congress and the Fed should do to try to fix the situation.
"It is my belief that the Fed has done all that it can do, and perhaps done too much," Brady said. "There exists a real risk that the massive amount of liquidity the Fed has already injected into the economy could trigger higher inflation before the Fed can execute its exit strategy."
He added, "I also believe another round of Fed intervention will increase uncertainty among job creators while ignoring the genuine reason for low business investment and job creation, which is sound, timely fiscal policy."
Brady also warned against what he called an "obsessive push" from Democrats on higher level income earners, who Brady called "job creators" and a "flood of red tape" from federal regulators.
"No matter what actions the Fed takes, without strong leadership by the president today, and action by the Congress now, on these fiscal issues, Americans will not see the jobs or the strong recovery we deserve," Brady said.
Bernanke said that one of the keys to addressing the fiscal problems of the nation would be the rate of economic growth, noting that an improved economy drives down budget deficits by increased tax revenues and decreased expenditures on social safety net programs.
Bernanke also warned that allowing all of the tax cuts enacted under former President Bush to expire as scheduled at the end of the year could pose a drag on economic growth.
If all other factors were held constant, Bernanke said, the expiration of those tax cuts would have a "significant" negative impact on the economy.
"I'm not necessarily say that the right thing to do is extend those cuts," he said, noting that Congress could potentially take other actions. However, he said the tax cuts are "the single biggest component of that fiscal cliff."
Bernanke also warned against a potential repeat of last year's showdown over raising the federal debt ceiling, noting that the 200 year history the U.S. has established of paying its debts is one of the country's greatest strengths.
"It's a strength we should not squander if at all possible," he said.
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