Committee for a Responsible Federal Budget

Ben Bernanke and the Fiscal Outlook

Apr 14, 2010

In testimony before the Joint Economic Committee, Federal Reserve Chairman Ben Bernanke once again affirmed his membership in our Announcement Effect Club.  He argued that short-term deficits are necessary to bring the economy out of recession, but that the long-term imbalances are simply too large to ignore for much longer.  As he said:

"Timely attention to these issues is important, not only for maintaining credibility, but because budgetary changes are less likely to create hardship or dislocations when the individuals affected are given adequate time to plan and adjust. In other words, addressing the country's fiscal problems will require difficult choices, but postponing them will only make them more difficult."

In addition to emphasizing quick action on our fiscal problems, he also noted that putting in place a plan for medium- to long-term deficit reduction could actually help the economy in the short run.

"Although sizable deficits are unavoidable in the near term, maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance. A credible plan for fiscal sustainability could yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence."

We couldn't have said it better ourselves.  Chairman Bernanke has been a consistent preacher of the Announcement Effect Club's gospel: long-term deficit reduction plans can have short-term stimulative effects.  In fact, he repeated a similar message in a speech in Dallas just last week.  Keep up the good work, Ben.