Federal Reserve Chairman Ben Bernanke offered a parting critique of Washington’s fiscal policy, arguing it weighed down the economic recovery and has been “counterproductive.”
Bernanke, wrapping up his final month on the job, said in a speech Friday that the nation’s fiscal course in recent years has been overly restrictive. As lawmakers looked to cut into the deficit by cutting spending and increasing taxes in recent years, Bernanke argued against that penny-pinching.
Ever since the financial crisis and recession, the Fed has entered uncharted territory in its efforts to prop up the economy. Bernanke argued that Washington’s obsession with the deficit over the last few years may have missed the mark, and that if the two institutions had worked together to improve the immediate economy, everyone would have been better off.
“With fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be,” he said. “Monetary policy has less room to maneuver when interest rates are close to zero, while expansionary fiscal policy is likely both more effective and less costly in terms of increased debt burden when interest rates are pinned at low levels.”
Bernanke has long been critical of Washington’s near-term fiscal policy, and what he sees as overzealous efforts to rein in the deficit immediately. He has called on Congress to adopt longer-term fiscal policy that addresses the nation’s unsustainable debt trajectory, but has urged against immediate cuts and tax hikes that he believes impede the still-tenuous economy.
However, he said there are reasons for optimism going forward. The economy appears to be gaining strength, and Bernanke said the degree of fiscal tightening looks set to loosen in the coming years.
In December, Bernanke and the Fed pointed to those positive aspects as a reason to begin slowing the years’ worth of stimulus it has pumped into the economy. The Fed announced after its latest policy meeting that it would begin reducing the amount of bonds it purchases each month as part of its latest round of “quantitative easing.”
Bernanke will likely be replaced by Janet Yellen as Fed chief this month. Yellen is expected to be confirmed by the Senate Monday when lawmakers return from the holiday break.