Fiscal Cliff Fix May Boost US Economy, Bernanke Says

By TraderVox.com

Tradervox.com (Dublin) – Ben S. Bernanke, the Federal Reserve Chairman, has indicated that an agreement on the means to reduce the long-term federal budget deficits will remove a major impediment to economic growth in the US. Speaking to the Economic Club of New York, Bernanke warned that failure to avoid the fiscal cliff will pose a substantial threat to the nation’s recovery efforts. He added that there needs to be securing and confidence in the direction being taken by the economy which will boost the economic growth and reduce the unemployment in the country.

In his remarks, Bernanke pointed out the threat of the $607 billion in automatic tax increases and spending cuts which will take effect next year unless the US Congress acts, poses the greatest impediment to the growth of the economy. The fiscal cliff, if not averted will force companies to shy away from hiring hence increasing the rate of unemployment in the country. He reiterated that a failure to reach an agreement will send the economy back to another recession.

The Federal Reserve embarked on a third round of quantitative easing measures, where it is buying $40 billion in housing debt per month to boost employment and secure the housing sector. The Fed also kept its interest rate to near zero levels as it seeks to boost the economy. Bernanke promised to do everything to support ongoing recovery in growth, jobs and to create demand for output and demand for companies’ products hence removing the uncertainty about the future sustainability of the recovery process.

After Bernanke’s speech, the ten-year benchmark yields rose to 1.67 percent from the previous reading of 1.61 percent. The Fed Chief comments suggest that an agreement on the fiscal deal will remove any impediments to economic growth in the country. The Standard & Poor’s Stock Index rose by 0.1 percent to reach 1,387.82 at the close of trading after losing 0.7 percent during the day in New York.

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