The timing looks a bit political to those who don't think a dreaded deficit of 9% of GDP by 2020 is all that dreadful. Particularly as fiscal reform is clearly on this president's agenda and, economists seem to agree, passage of the health reform bill has been a big step towards cutting into the deficit.
Here's a more cogent reason for the Fed chief's declaration of gloom: he wants more, better and sooner action from the fiscal reform commission.
In prepared testimony to the Joint Economic Committee of Congress, Mr. Bernanke did not address monetary policy or say how long the Fed would keep short-term interest rates near zero.
He also did not specify whether he believed the government should raise taxes, make cuts to Social Security and other benefits programs, or do something else. But his admonitions could help give momentum to the bipartisan fiscal commission created by President Obama.
Inflation remains low and is not a threat (except to those who use food and energy).
Excluding the more volatile prices of food and energy, core inflation has slowed to annual rate of 0.5 percent. And long-term inflation expectations have been stable.
Stalling on fiscal reform is a more pressing concern.
The Federal Reserve chairman said Wednesday that the government must begin to make “difficult choices” to address its gaping deficits and warned that “postponing them will only make them more difficult.”
Congress, though, remains fixated on the deficit.
The deficit, which this fiscal year will nearly reach the record of $1.4 trillion achieved in 2009, will begin to “recede somewhat” over the next two years as the stimulus winds down and the recovery brings in more revenue. But the deficit is expected to remain around 4 to 5 percent through 2020, under a projection by the Congressional Budget Office that Mr. Bernanke suggested was fairly rosy.
Under a more gloomy fiscal scenario — 60,000 American troops in overseas operations by 2015, discretionary spending growing at the rate of nominal gross domestic product, the extension of expiring tax cuts, and indexing the alternative minimum tax for inflation — the deficit could hit 9 percent of G.D.P. by the end of 2020. ...NYT
