U.S. Federal Reserve Chairman Ben Bernanke on Thursday warned that the escalating eurozone debt crisis and the looming U.S. fiscal cliff had posed significant risks to U.S. economic recovery, but gave no explicit hint of massive monetary steps to strengthen the tepid growth.
U.S. economic growth had continued at a moderate rate so far this
year, and the nation's labor market conditions improved in the
latter part of 2011 and earlier this year, Bernanke said in his
testimony before the Joint Economic Committee of U.S. Congress.
U.S. economic growth appeared poised to continue at a "moderate
pace" over coming quarters, supported in part by accommodative
monetary policy, he said.
The economic activity in most U.S. regions expanded at a "
moderate pace" from early April to May, with the manufacturing
sector expanding in most areas and consumer spending flat, revealed
a national economic survey released by the Fed on Wednesday.
However, the U.S. central bank chief said concerns about
sovereign debt and the health of banks in a number of eurozone
countries continued to create strains in global financial markets.
"The crisis in Europe has affected the U.S. economy by acting as
a drag on our exports, weighing on business and consumer confidence,
and pressuring U.S. financial markets and institutions, " Bernanke
said.
European policymakers had taken a number of actions to address
the crisis, but more would likely be needed to stabilize eurozone
banks, calm market fears about sovereign finances, achieve a
workable fiscal framework for the euro area, and lay the foundations
for long-term economic growth, he said.
On top of the simmering eurozone debt crisis, some domestic
factors that had restrained the recovery still persisted, Bernanke
cautioned.
U.S. households and businesses still appeared quite cautious
about the economy. Concerns about developments in U.S. fiscal policy
and the strength and sustainability of the recovery had left some
firms hesitant to expand capacity. The depressed housing market had
also been an important drag on the recovery, he said.
Inflation in the United States was expected to remain at or
slightly below the 2 percent rate that the Federal Open Market
Committee (FOMC), the Fed's interest rate setting panel, judges
consistent with its statutory mandate to foster maximum employment
and stable prices.
With tamed inflationary pressure and an anemic job creation pace,
some economists were expecting the Fed to take new policy moves at
its June 19-20 FOMC meeting to bolster the economic recovery.
"As always, the Federal Reserve remains prepared to take action
as needed to protect the U.S. financial system and economy in the
event that financial stresses escalate," Bernanke said, without
specifying potential measures.
Monetary policy was not "panacea", while the economy's
performance over the medium and longer term also would depend
importantly on the course of the fiscal policy, Bernanke warned.
However, several high-ranking Fed officials including its vice
chairman Janet Yellen said Wednesday that further monetary steps
were needed to guard against an economic downturn.
As fiscal policymakers addressed the urgent issue of fiscal
sustainability, a second objective should be to avoid unnecessarily
impeding the current economic recovery, contended Bernanke.
"Indeed, a severe tightening of fiscal policy at the beginning of
next year that is built into current law -- the so-called fiscal
cliff -- would, if allowed to occur, pose a significant threat to
the recovery," he added.
