Bernanke says fiscal cliff fix may bring good news

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.