Federal Reserve Chairman Ben Bernanke has used nearly all the tools at his disposal in an effort to accelerate what he described as “the disappointingly slow pace of economic recovery.” But at the New York Economic Club Tuesday, the Fed Chair said if the White House and Congress can’t come up with a deal to stop the fiscal calamity set to take place on New Year’s, all bets are off.
“The ability of the Fed to offset headwinds is not infinite,” Bernanke said. “In the worst-case scenario where the economy goes off the broad fiscal cliff, the largest fiscal cliff, which according to CBO and to our own analysis would throw the economy into recession, I don’t think the Fed has the tools to offset that.”
Despite three rounds of bond-buying, the nation’s economic growth has been stuck at 2% or lower all year. Fed officials announced last month that they will keep short-term interest rates near zero through mid-2015, extending an effort that began four years ago.
Bernanke, however, included a dose of optimism in his speech, seemingly speaking directly to Congress in a plea for action. “(Economic) uncertainties will only be increased by discord and delay. In contrast, cooperation and creativity to deliver fiscal clarity, in particular, a plan for resolving the nation’s longer term budgetary issues, without harms the recovery could make the new year a good one for the American economy.”
Over the next six weeks, we’ll see if Congress gets the message.