Ber­nanke says fis­cal cliff fix may bring good news

The Pak Banker - - Front Page -

NEW YORK

Ben S. Ber­nanke, chair­man of the US Fed­eral Re­serve, speak­ing to the Eco­nomic Club of New York said that an agree­ment on ways to re­duce longterm fed­eral bud­get deficits could re­move an im­ped­i­ment to growth, while fail­ure to avoid the so-called fis­cal cliff would pose a “sub­stan­tial threat” to the re­cov­ery.

Fed­eral Re­serve Chair­man Ben S. Ber­nanke said an agree­ment on ways to re­duce longterm fed­eral bud­get deficits could re­move an im­ped­i­ment to growth, while fail­ure to avoid the so-called fis­cal cliff would pose a “sub­stan­tial threat” to the re­cov­ery. “There’s im­por­tant po­ten­tial for the econ­omy to strengthen sig­nif­i­cantly if there’s a greater level of se­cu­rity and con­fi­dence about where we’re go­ing,” he said to­day to the Eco­nomic Club of New York. “A plan for re­solv­ing the na­tion’s longer-term bud­getary is­sues with­out harm­ing the re­cov­ery could help make the new year a very good one for the Amer­i­can econ­omy.”

Ber­nanke, 58, iden­ti­fied the threat of $607 bil­lion in au­to­matic tax in­creases and spend­ing cuts set to take ef­fect next year as one of the im­ped­i­ments to a faster ex­pan­sion as com­pa­nies hold back on hir­ing and in­vest­ment. The Fed chief re­peated his warn­ing a fail­ure to reach an agree­ment could send the econ­omy “top­pling back into re­ces­sion.”

The cen­tral bank is buy­ing $40 bil­lion in hous­ing debt each month and has pledged to keep its bench­mark in­ter­est rate near zero through mid2015 as it seeks to spur growth and re­duce a 7.9 per­cent job­less rate.

“We’re go­ing to do what we can to sup­port on­go­ing re­cov­ery in growth and jobs and cre­ate the de­mand for out­put, the de­mand for firms’ prod­ucts that will re­move that un­cer­tainty about the fu­ture sus­tain­abil­ity of the re­cov­ery,” Ber­nanke said.

The yield on the 10-year Trea­sury note climbed to 1.67 per­cent from 1.61 per­cent as Ber­nanke’s com­ments sug­gested that a fis­cal deal could re­move im­ped­i­ments to growth. Stocks erased losses, with the Stan­dard and Poor’s 500 In­dex ad­vanc­ing 0.1 per­cent to 1,387.82 at the close of trad­ing in New York af­ter los­ing as much as 0.7 per­cent.

“This is prob­a­bly the most up­beat speech he has given, but it’s still guarded op­ti­mism,” said Harm Band­holz, chief U.S. econ­o­mist at UniCredit Group in New York. “It’s still Ber­nanke. He has been so cau­tious about ev­ery­thing throughout the re­cov­ery.”

“Un­cer­tainty” about the fis­cal out­look “may be con­tribut­ing to an in­creased sense of cau­tion in fi­nan­cial mar­kets, with ad­verse ef­fects on the econ­omy,” Ber­nanke said at the Mar­riott Mar­quis Ho­tel in Times Square.

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