A major concern for businesses in the current economic climate is policy uncertainty, according to Ben Bernanke, Chairman of the Federal Reserve.
During testimony before the House Committee on the Budget, Bernanke discussed the current economic situation and the need for Congress to move quickly to outline policies and a budget for the fiscal year.
“We should be planning now how we will meet these looming budgetary challenges,” Bernanke said in written testimony. “Achieving long-term fiscal sustainability will be difficult. But unless we as a nation make a strong commitment to fiscal responsibility … we will have neither financial stability nor health economic growth.”
According to Bernanke, the federal budget is currently “on an unsustainable path,” despite the moderate pace of recovery.
“Significant restraints on the pace of the recovery remain,” he said.
A central issue for the U.S. economy is the economic situation in Europe, according to Bernanke. The market uncertainty over the situation in Greece, as well as the economic situation in Spain, Italy and Ireland, has affected the U.S. market.
“U.S. financial markets have been roiled in recent weeks by these developments, which have triggered a reduction in demand of risky assets,” he said.
However, Europe is currently implementing strong measures to counteract the effects of the crisis, according to Bernanke.
“If markets continue to stabilize, then the effects of the crisis on economic growth in the United States seem likely to be modest,” he said. “The Federal Reserve will remain highly attentive to developments abroad and to their potential effects on the U.S. economy.”
To address domestic concerns, the Fed is currently working with banks to alter policies that don’t engender risk taking, Bernanke said.
He also addressed the issue of GAO audits regarding Fed policies, which was included in a House bill. Bernanke said, while he welcomes financial audits, a policy audit would harm the independence of the Fed.