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Bernanke: Fiscal Cliff Is Already Harming The Economy

The Chairman of the Federal Reserve Board spoke again today about the dangers of the fiscal cliff:

WASHINGTON (AP) — The U.S. economy is already being hurt by the “fiscal cliff” standoff in Washington, Federal Reserve Chairman Ben Bernanke said Wednesday. But Bernanke said the Fed believes the crisis will be resolved without significant long-term damage.

The steep tax increases and spending cuts can be avoided with a successful budget deal, Bernanke said during a news conference after the Fed’s final meeting of the year. The Fed’s latest forecasts for stronger economic growth next year and slightly lower unemployment assume that happens.

Still, Bernanke said the uncertainty surrounding the resolution is already affecting consumer and business confidence. And it has led businesses to cut back on investment.

“Clearly the fiscal cliff is having effects on the economy,” Bernanke said.

Bernanke said the most helpful thing that Congress and the Obama administration can do is resolve the issue quickly.

“I’m hoping that Congress will do the right thing on the fiscal cliff,” Bernanke said. “There is a problem with kicking the can down the road.”

Bernanke repeated his belief that if the scheduled tax hikes and spending cuts do take effect in January, they will have a significantly adverse effect on the economy, regardless of what the Fed might do.

“We cannot offset the full impact of the fiscal cliff. It’s just too big,” Bernanke said.

Perhaps it’s just me, but I think Bernanke is being just a little bit optimistic about the chances of a deal.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Ben Wolf says:

    I’m glad to see Bernanke acknowledging the Fed is at the limits of what it can do (which is nothing).

    The best outcome we can hope for is to see sequestration pushed into the future by a year, whcih will at least keep the economy out of recession. Still, having an economic Sword of Damocles hanging over our heads will be bad for working people and small businesses who can’t plan due to the enormous uncertainty.

    That we’re even having this problem is a result of disastrous negotiations between the President and the Republicans last year. Nothing like these automatic hikes and cuts should ever have been agreed to.

    Like or Dislike: Thumb up 1 Thumb down 0

  2. Gustopher says:

    Republicans continue to create uncertainty in the economy.

    Like or Dislike: Thumb up 3 Thumb down 0

  3. David M says:

    But I thought the GOP was most concerned with creating jobs? How can this be?

    Like or Dislike: Thumb up 0 Thumb down 0

  4. michael reynolds says:

    @David M:

    The GOP doesn’t care about governing. The GOP is insane.

    Like or Dislike: Thumb up 1 Thumb down 0

  5. OzarkHillbilly says:

    @David M:

    But I thought the GOP was most concerned with creating jobs? How can this be?

    No, the GOP is only concerned with the bottom line for our Corporate Overlords, who, if you take a look at the Dow Jones avg., are doing just fine.

    Like or Dislike: Thumb up 0 Thumb down 0