Transcript: Excerpts of Ben Bernanke’s statements on the fiscal cliff
Edited by Jenny Jiang
Excerpts of remarks by Federal Reserve Chairman Ben Bernanke on the fiscal cliff during a press briefing Q&A on Dec. 12, 2012:
Clearly, the fiscal cliff is having effects on the economy. Even though we’ve not yet even reached the point of the fiscal cliff potentially kicking in, it’s already affecting business investments and hiring decisions by creating uncertainty or creating pessimism.
We saw what happened recently to consumer sentiment, which fell reasonably hard because of concerns about the fiscal cliff.
So clearly, this is a major risk factor and a major source of uncertainty about the economy going forward. I would suspect, and although the participants don’t all make this explicit but I would suspect what they are assuming in their projections is that the fiscal cliff gets resolved in some intermediate way whereby there’s still some fiscal drag but not as much as implied by the entire fiscal cliff. So I think that’s probably the underlying assumption that most people took when they made their projections.
But you’re absolutely right. There’s a lot of uncertainty right now. And if the fiscal cliff situation turns out to be resolved in a way very different from our expectations, I’m sure you would see changes in the forecast.
I hope it won’t happen but if the fiscal cliff occurs, as I’ve said many times, I don’t think the Federal Reserve has the tools to offset that event, and in that case, we obviously have to temper our expectations about what we can accomplish.
If the economy actually went off the fiscal cliff, our assessment, the CBO’s [Congressional Budget Office] assessment, and outside forecasters all think that that would have very significant adverse effect on the economy and on the unemployment rate.
And so, on the margin, we would try to do what we could. We would perhaps increase a bit. But I just want to, again, be clear that we cannot – we cannot – offset the full impact of the fiscal cliff. It’s just too big given the tools that we have available and limitations on our policy tool kit at this point.
In terms of the terminology, well – people have different preferences about what they want to call things.
I think it’s a sensible term because I think the fiscal policies providing support to the economy – if fiscal policy becomes very contractionary, the economy I think will go off a cliff.
I think it’s reasonable to be concerned about this.
I don’t buy the idea that a short-term descent off the fiscal cliff would be not costly; I think it would be costly. And in fact, we’re already seeing costs. Why is it that consumer confidence dropped so sharply this week? Why is it that small business confidence dropped so sharply? Why are the markets volatile? Why is business investment among its weakest levels during the recovery? I think all of these things – at least to some extent – could be traced to the anticipation, the concern about the fiscal cliff.
And I think that – you know – we don’t know exactly what would happen, but I think there’s certainly a risk that it could be serious.
And therefore, I think it’s very important the most helpful thing I think Congress and the [Obama] administration can do right now is find a resolution that on the one hand achieves long-term fiscal sustainability which is critical – absolutely critical – for a healthy economy but also avoid derailing the recover, which is currently in process.
I’m hoping that Congress will do the right thing on the fiscal cliff.
You know, there’s a problem with kicking the can down the road. It might avoid some of the short-term impacts on the recovery but it could create concerns about our longer term fiscal situation. I don’t want to see that.
So I think it’s in the best interest of the economy to come to a 2-part solution, if you will.
Part one is to modify fiscal policy in a way that doesn’t create enormous headwinds for the recovery in the near term.
And part two is to at least take important steps towards achieving a framework at least – by which perhaps through further negotiation, the Congress and the [Obama] administration can achieve a sustainable path for fiscal policy.
Both of these parts are very important. I don’t think that we can consider these negotiations a success unless both of them happen…They’re equally important.
Part of the reason that, you know, we are engaging in these policies is to try and create a stronger economy, more jobs, so that folks across the country, including places like the one where I grew up, you know, will have more opportunity to have a better life for themselves. So that’s extremely important.
And I think it’s very important that we not just look at the numbers. It’s easy to look at the unemployment rate and say that well, it’s one-tenth or two-tenths. Every tenth means many, many people are represented there. So it is very important to try to keep in mind the reality of unemployment to foreclosure to weak wage growth, etc. So we always try to do that.
It’s always a delicate balance. You don’t want to scare people. And I actually believe that Congress will come up with a solution and I certainly hope they will.
But as many analysts – not just the Fed – have pointed out, if the fiscal cliff was allowed to occur – and certainly if it were sustained for any period – it could have a very negative effect on hiring, jobs, wages, economic activity, investment. And of course, the consequences of that will be felt by everybody but certainly by those in areas like where I grew up that are relatively in weak economically and no doubt would feel the greater brunt.
So it’s exceptionally urgent and important that Congress and the Administration come to a sensible agreement on this issue.
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