|Bernanke insists Fed stimulus aided growth, warns against budget cuts
US growth has rebounded after the flat fourth quarter, but remains “somewhat uneven'' and vulnerable to looming budget cuts, Federal Reserve Chairman Ben Bernanke told Congress today.
“The pause in real GDP growth last quarter does not appear to reflect a stalling-out of the recovery... Available information suggests that economic growth has picked up again this year.’’
He said the central bank was confident it could manage the risks from its expanded quantitative-easing stimulus program.
“Highly accommodative monetary policy also has several potential costs and risks,'' he told a Senate panel. But the Fed policy board “remains confident that it has the tools necessary to tighten monetary policy when the time comes to do so.’’
He warned Congress that the US$85 billion in spending cuts of the March 1 sequester would place a “significant’’ additional burden on the US economic recovery.
“The Congress and the administration should consider replacing the sharp, front-loaded spending cuts required by the sequestration with policies that reduce the federal deficit more gradually.’’
The low-interest rate policy has boosted the housing market and the production and sales of automobiles and other durable goods, and stimulated the jobs market, he argued.
He said the Fed was keeping a close eye on signs of risky behavior arising in the financial system due to the prolonged low-rate environment, a worry that was expressed in January by some members of the Federal Open Market Committee, the Fed's policy board.
However, he said, "to this point we do not see the potential costs of increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more job creation.''