Bernanke Sings Same Tune: Unhealthy Job Market, Fiscal Policy is Priority

Bernanke Sings Same Tune: Unhealthy Job Market, Fiscal Policy is PriorityOn Tuesday, Federal Reserve Chairman Ben S. Bernanke appeared before the Senate Budget Committee, using his same prepared remarks from his Feb. 2 House Budget panel appearance and reiterating his concerns about an unhealthy job market. Bernanke also called on the group to reduce the long-term budget deficit.

He opened his testimony by speaking about the labor market. Bernanke said, “We still have a long way to go before the labor market can be said to be operating normally. Particularly troubling is the unusually high level of long-term unemployment.”

On Friday, January’s numbers disclosed an 8.3 percent unemployment rate, minimizing the weak labor market. Bernanke suggested that other measures of the labor market such as underemployment needs to reviewed to really paint the current employment picture.

January’s number also represented the fifth consecutive month of declines; however, it is still higher than the 5.2 percent to 6 percent that Bernanke said is the estimate for maximum employment. One negative January number that can’t be overlooked is the rise of  the unemployed who have been without work for 27 weeks or more rose.  January reported this as 42.9 percent versus December’s 42.5 percent, according to the Labor Department.

Here’s a few additional highlights from Tuesday’s hearing.

Top Priority: U.S. Fiscal Policy

Last week in front of the House committee, Bernanke said the group needed to make it a “top priority” to put U.S. fiscal policy on a sustainable path. This encompasses that debt will either drop in relation to national income or remain stable.

Bernanke reiterated this on Tuesday and suggested that interest rates could “soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy.” He also advised congress to “take care not to unnecessarily impede the current economic recovery.”

In addition, Bernanke said that he didn’t advocate a specific tax policy, but noted that Congress should agree on tax rates. This needs to be done by year’s end as the federal income tax rates and estate tax rates are set to expire then.

Similar to Feb. 2, Bernanke did not give his thoughts on policies such as the payroll tax cut and unemployment benefits.

Europe Debt Crisis

Again, Bernanke warned to lawmakers that Europe’s sovereign debt crisis is slowing down global growth and causing potential risks for the U.S. economy. He said on Tuesday that areas in Europe “are ‘certainly’ in recession” but whether the entire region falls into negative economic growth remains to be seen, according to The Wall Street Journal.

Bernanke also said that weak EU countries such as Greece have contracting economies but if the entire EU goes into a recession, it remains an “open question” for how long it would stay that way and how bad it could become.

If European countries do suffer from a grave recession, the U.S. would endure a negative impact as approximately two percent of exports go to these countries, noted Bernanke.

 

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