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Expressing optimism, concern and urgency, U.S. Federal Reserve Chairman Ben Bernanke delivered a firm message on the fiscal cliff Tuesday to Capitol Hill.
He pressed lawmakers to strike a deal to avert the fiscal cliff, and to permanently stop playing politics with the federal debt limit.
Doing so, the central bank chief said, would mean the next year would be "a very good one for the American economy."
Speaking to the New York Economic Club, Bernanke said, "Uncertainty about how the fiscal cliff, the raising of the debt limit and the longer-term budget situation will be addressed appears already to be affecting private spending and investment decisions, and may be contributing to an increased sense of caution in financial markets."
Bernanke stressed that the automatic tax increases and the roughly $500 billion in spending cuts that make up the nightmarish fiscal cliff, which are set to kick in Jan. 1 if Congress fails to act, would pose a substantial threat to the recovery.
Bernanke added confidently that the Fed's latest stimulus, its program of buying $40 billion in mortgage-backed securities each month until its sees substantial improvement in the jobs market, should continue to provide support as the economy claws its way out of the Great Recession.
Economists and the Congressional Budget Office have warned that if the fiscal cliff is not resolved before the year's end, America faces an almost certain recession next year.
"A failure to reach a timely agreement this time around could impose even heavier economic and financial costs. Coming together to find fiscal solutions will not be easy, but the stakes are high," Bernanke added.
Moving Toward a Fiscal Cliff Deal
Acknowledging the quickly approaching deadline, U.S. President Barack Obama met with congressional leaders last week to work on hammering out a fiscal cliff deal. Negotiations continued this week without the president who was on a brief four-day trip to Southeast Asia.
While both Democrats and Republicans agree that falling off the cliff would be detrimental to the besieged U.S. economy, the two sides don't agree on the proposed tax increases for the wealthiest Americans or on how to cut entitlement spending.
Also pressuring Washington in Congress' need to pass another increase is the federal debt ceiling, currently set at a whopping $16.4 trillion.
Bernanke recalled that peevish talks between the opposing parties during the summer of 2011 over increasing the debt limit adversely affected financial markets and the economy.
Since then, the economy has become more vulnerable.
Visible signs of uncertainties surrounding the looming fiscal cliff are already being spotted in stalled job growth, reductions in business expansion projects and waning capital spending growth.
Nondefense capital goods orders, excluding aircraft, a key measure of demand, were flat in September, following a near 8% tumble in June and July. The three-month read from June to September was the weakest since the second quarter of 2009, data from the Commerce Department revealed.
Bernanke stressed, "Such uncertainties will only be increased by discord and delay."
The Fed maintains it will keep interest rates at historic low near zero levels until at least mid-2015.
"We hope that such assurances will reduce uncertainty and increase confidence among households and business, thereby providing additional support for economic growth and job creation," Bernanke shared.
We'll see if Washington listens to Bernanke's fiscal cliff advice.
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