Striking a note of concern about the fiscal situation in the United States, Ben Bernanke, Chairman of the Federal Reserve, said “To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above.”
In a speech to the Dallas Regional Chamber of Commerce on Wednesday Mr. Bernanke explained that addressing the fiscal challenges posed by an aging population would require “a willingness to make difficult choices.”
However, he cautioned that the economy continued to operate “well below its potential,” implying that sharp near-term reductions in the fiscal deficit would probably neither be practical nor advisable.
Mr. Bernanke argued that the U.S. ought to demonstrate a strong commitment to fiscal responsibility, for if it did not do so, in the longer run, the country would have neither financial stability nor healthy economic growth.
While he described the short and long-term economic challenges faced by the U.S. as “daunting”, he also touched a cautiously optimistic note when he said, “My best guess is that economic growth, supported by the Federal Reserve's stimulative monetary policy, will be sufficient to slowly reduce the unemployment rate over the coming year.”
He further added that although unemployment rate had “edged off its recent peak” at 9.7 percent, it was still close to its highest level since the early 1980s, and hiring remained “very weak.”
On the housing sector, at the heart of the economic crisis since 2008, Mr. Bernanke voiced continuing concern, saying, “We have yet to see evidence of a sustained recovery in the housing market. Mortgage delinquencies for both subprime and prime loans continue to rise, as do foreclosures.” He additionally warned that the commercial real estate sector remained troubled, and that was a concern for communities and for banks holding commercial real estate loans.
Mr. Bernanke expressed support for the ongoing Congressional efforts – led by Senator Chris Dodd – to get new financial regulation bills passed: “The Federal Reserve strongly supports ongoing congressional efforts to reform our financial regulatory framework,” he said.
However, he added, “But we are not waiting for new legislation to make improvements. We have been working hard to strengthen our own oversight of financial institutions and to broaden our field of vision to include potential risks to the financial system as a whole as well as risks to individual firms.”
