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Bernanke: Fed Prepared to Do More if Recovery Stalls

Alex Wong/Getty Images(WASHINGTON) -- Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that the central bank is prepared to take additional action if the economy does not pick up.  

"Once the temporary shocks that have been holding down economic activity pass, we expect to again see the effects of policy accommodation reflected in stronger economic activity and job creation," Bernanke told the House Financial Services Committee.

"However, given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium-term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate."

In addressing why the economic recovery seems slow, Bernanke told Congress that the factors contributing to the slow recovery are likely temporary.

"Notably, the run-up in prices of energy, especially gasoline, and food has reduced consumer purchasing power. In addition, the supply chain disruptions that occurred following the earthquake in Japan caused U.S. motor vehicle producers to sharply curtail assemblies and limited the availability of some models,” he said.  

The chairman warned Congress that sharp federal budget cuts in the short-term could negatively impact the economic recovery.  But, Bernanke said the $4 trillion over 10 year deficit proposal President Obama and congressional leaders have discussed could do the U.S. some good.

"It has the advantage -- if it can be done -- it has the advantage that it will stabilize the ratio of our debt to GDP, and that would be a very encouraging development," he said.

Bernanke pushed lawmakers to use the debate over raising the debt ceiling as a chance to address the long-term sustainability of government spending.   

"As I've argued, we need both an increase in the debt limit, which will prevent us from defaulting on obligations which we've already incurred in which would create tremendous problems for our financial system in our economy, but we also need of course to take a serious attack on the unsustainable of our fiscal position. I think both of those things can be accomplished," said Bernanke.

Asked what Congress can do to put Americans back to work, Bernanke steered clear of endorsing specific programs, but said lawmakers should try to address unemployment through job training programs.  He also said they should take a serious look at what they can do to boost the housing market as well as modifying the tax code.

Bernanke warned lawmakers about the danger of long-term unemployment. "What's particularly bad about it is so many people have been out of work so long, it's going to be hard to get them back to anything like the kind of jobs they had when they lost their jobs back in the beginning of the recession." 

Bernanke was on Capitol Hill presenting his semi-annual monetary policy report.  

Copyright 2011 ABC News Radio

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