WASHINGTON (MNI) – The following is an excerpt from Federal Reserve
Chairman Ben Bernanke’s press conference Wednesday.

QUESTION: When you speak of the fiscal cliff typically you don’t
differentiate between the automatic tax hike aspect of that and the
automatic spending cuts, which leaves the impression that you are giving
equal weight to both sides. Some would contend that the automatic tax
hikes would be more onerous. How do you parse the relative importance of
those two aspects? And if I may be permitted, I am also curious to know
how the Fed is going to conduct open market operations, if as the New
York Fed statement says, by the end of this year they will essentially
have no short-term securities to use.

BERNANKE: On the fiscal cliff, just the way that the programs are
set up, the dollar amount associated with the tax expirations — tax cut
expirations, including the payroll tax cut and so on, it is larger than
the spending cuts, as I understand it. But I’m not making judgment about
individual programs. The point here is that putting all these things
together, you have a very substantial withdrawal of income from the
economy that will affect spending and will affect the ability of the
economy to recover in the short-run.

Again in making decisions about how to modify those automatic
changes, Congress obviously has to look at the long-run and what is the
most efficient tax structure, what is the best way to spend our limited
resources? Those are tough decisions Congress has to make, but in terms
of the fiscal cliff, in terms of what will happen in January, it is
really the total of both spending cuts and tax increases which have the
impact that not only we, but the others like the congressional budget
office have identified as being a concern.

We will still be able to do open market operations with our
securities, even if the matter of short-term debt is very low. And
indeed of course over time, as securities come close to maturation, we
will have other securities that are of short duration.

** MNI Washington Bureau: 202-371-2121 **

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