WASHINGTON (MNI) The following is a transcript from the news
conference with Federal Reserve Chairman Ben Bernanke, who said
addressing fiscal deficits is a top priority, and that Standard & Poor’s
action could provide additional incentive to that effect:
REPORTER: Last week Standard & Poor’s put the United States debt on
a negative watch for the very first time ever. What is your reaction to
that? And are you concerned? Are you worried that the United States is
going to lose its AAA credit rating?
CHAIRMAN BERNANKE: Well, in one sense S&P’s action didn’t — S&P’s
action didn’t really tell us anything. Anybody who read a newspaper
knows that the United States has a very serious long-term fiscal
That being said I’m hopeful that this event will provide at least
one more incentive for Congress and the administration to address this
problem. I think it’s the most important economic problem at least in
the longer term that the United States faces.
We currently have a fiscal deficit which is simply not sustainable
over the longer term. And if it is not addressed it will have
significant consequences for financial stability, for economic growth,
and for our standard of living.
It is encouraging that we are seeing efforts on both sides of the
aisle to think about this issue from a long run perspective. It is not a
problem that can be solved by making the case only for the next six
months. It’s really a long-run issue.
We are still a long way from a solution, obviously. But I think it
is of the highest importance that our political leaders address this
very difficult problem as quickly and as effectively as they can. To the
extent that the S&P action bodes a response, I think that’s
REPORTER: In the past there have been times when fiscal policy has
tightened and the Federal Reserve has chosen to ease its policy in
response. Congress appears intent at this point in cutting spending
significantly. It might restrain the economy as it appears to be doing
in Britain where they are following a similar path. Is there anything
that the Fed can do or should do if indeed there are large budget cuts
sometime in the next 18 months?
CHAIRMAN BERNANKE: First let me say that addressing the fiscal
deficit, particularly the long run unsustainable deficit is a top
priority. Nothing I say should be construed as saying it’s anything
other than a top priority. It is terribly important that our leaders
address this issue.
I would also say that the cuts that have been made so far don’t
seem to us to have had significant consequences for short-term economic
Now, my preference in terms of addressing the long-term deficit is
to take a long-term perspective. It’s a long-term problem. If Congress
and the administration are able to make credible commitments to cutting
programs or in any way changing the fiscal profile going forward over a
long period of time, that is the most constructive way to address what
is in fact a long run problem.
If the changes are focused entirely on the short run, then they
might have some consequences for growth. In that case, the Federal
Reserve, which is as always going to try to set monetary policy to meet
our mandate would take those into account appropriately. So far I have
not seen any fiscal changes that have really changed our near term
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