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US economic recovery 'close to faltering'
Ben Bernanke, the Federal Reserve head, urges congress against making quick spending cuts that could hurt growth.
Last Modified: 04 Oct 2011 17:33



The chairman of the US Federal Reserve has urged congress against implementing spending cuts that could cause more financial turmoil, saying the country's economic recovery is "close to faltering".

Ben Bernanke made the appeal in testimony to US legislators in Washington on Tuesday, painting a bleak picture of the economic outlook for the US and the world.

Speaking to members of a joint economic committee, Bernanke said recent indicators point to "the likelihood of more sluggish job growth in the period ahead".

He called for a credible plan to cut long-term deficits, but said legislators should "avoid fiscal actions that could impede the ongoing economic recovery".

"There is evident need to improve the process for making long-term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy," he said.

Poor job growth

Bernanke added that the economy was growing more slowly than the Federal Reserve, the US central bank, had expected, with poor job growth marking the biggest factor depressing consumer confidence.

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"We need to make sure that the recovery continues and doesn't drop back and that the unemployment rate continues to fall downward."

But he made clear that the Federal Reserve stood ready to ease monetary conditions further following the launch of a new stimulus measure in September.

"The (Fed's policy-setting Open Market) Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in the context of price stability," he said.

Trimming the deficit

A committee of US legislators is currently considering measures to trim the US federal deficit. But Republicans and Democrats appear far from an agreement, particularly on the need for higher taxes ahead of the upcoming 2012 presidential election.

Bernanke's testimony was the firmest indication yet that the Federal Reserve may take further steps to prevent a weakening US economy from stumbling back into recession. Financial analysts increasingly have warned that economic contraction is a considerable risk.

His comments also came amid heightened concern that Europe's debt crisis could spill over to the continent's banks and beyond.

"It is difficult to judge how much these financial strains have affected US economic activity thus far, but there seems little doubt that they have hurt household and business confidence, and that they pose ongoing risks to growth," Bernanke said.

Source:
Agencies
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