The following are highlights from a U.S. Senate Budget Committee hearing on Friday with testimony from Federal Reserve Chairman Ben Bernanke.
BERNANKE ON UNEMPLOYMENT RATE
It's about what we expected (103,000 new jobs in December) ... but if we continue at this pace we're not going to see sustained declines in the unemployment rate.
BERNANKE ON TAXES, SPENDING:
We need to think about making investments for the future as opposed to simply spending our seed corn on current needs. So thinking about government programs, we should ask the question, will this provide benefits in the future.
On the tax side, I don't think it's really very controversial among economists that rising rates, combined with a multiplication of exemptions, deductions, credits and so on, leads to a tax code which is very complex and can distort economic decisions. And I think all of the major deficit reduction commissions have taken the opportunity to talk about the need to lower rates, but to close loopholes so as not to lose revenues. So I think that is something, I hope, that the Congress will talk about.
BERNANKE ON STABILIZING DEBT-TO-GDP RATIO
No one knows exactly what the desirable debt-to-GDP ratio is. You mentioned the 90 percent number as an upper level of comfort. In the near term I think we need to focus on stabilizing the debt-to-GDP ratio. Under the alternative scenario of the CBO (Congressional Budget Office) it just rises indefinitely and that's certainly not sustainable. If we could achieve, say in the next decade, a two to three percentage point reduction in the deficit that would be sufficient to bring the primary deficit close to zero and it would stabilize the debt-to-GDP ratio over the next decade. We'd need additional steps after that.
COMMITTEE CHAIRMAN KENT CONRAD'S OPENING STATEMENT ON THE BUDGET:
We need to get in place this year a plan to get our fiscal house in order.
The Bowles-Simpson plan could provide a blueprint and the way forward.
Facing up to the debt threat is something we must do and we must do it together.
BERNANKE ON ECONOMIC RECOVERY:
The economic recovery that began a year and a half ago is continuing, although, to date, at a pace that has been insufficient to reduce the rate of unemployment significantly. ... More recently, however, we have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold. In particular, real consumer spending rose at an annual rate of 2-1/2 percent in the third quarter of 2010, and the available indicators suggest that it likely expanded at a somewhat faster pace in the fourth quarter. Business investment in new equipment and software has grown robustly in recent quarters.
BERNANKE ON EMPLOYMENT OUTLOOK:
A number of indicators of job openings and hiring plans have looked stronger in recent months, and initial claims for unemployment insurance declined through November and December. Notwithstanding these hopeful signs, with output growth likely to be moderate in the next few quarters and employers reportedly still reluctant to add to payrolls, considerable time likely will be required before the unemployment rate has returned to a more normal level. Persistently high unemployment, by damping household income and confidence, could threaten the strength and sustainability of the recovery.
BERNANKE ON BUDGET OUTLOOK:
It is widely understood that the federal government is on an unsustainable fiscal path. Yet, as a nation, we have done little to address this critical threat to our economy. Doing nothing will not be an option indefinitely; the longer we wait to act, the greater the risks and the more wrenching the inevitable changes to the budget will be. By contrast, the prompt adoption of a credible program to reduce future deficits would not only enhance economic growth and stability in the long run, but could also yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence.