“Fiscal decisions should take into account the fragility of the recovery,” Bernanke, 58, said. “The most effective way that the Congress could help to support the economy right now would be to work to address the nation’s fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery.”
The Fed chairman said Europe’s financial markets and economy “remain under significant stress,” and that’s creating “spillover effects” in the rest of the world including the U.S.
“The possibility that the situation in Europe will worsen further remains a significant risk to the outlook,” Bernanke said.
He said European authorities have strong incentives to resolve the crisis, and U.S. financial firms continue to take steps to manage their risks.
“That said, European developments that resulted in a significant disruption in global financial markets would inevitably pose significant challenges for our financial system and our economy,” he said.
The Fed chief is scheduled to testimony tomorrow before the House Financial Services Committee.
Bernanke’s remarks before Congress today are his first since the Labor Department reported on July 6 that employers added 80,000 jobs to payrolls in June, fewer than economists forecast, while the jobless rate was unchanged at 8.2 percent, the 41st consecutive month above 8 percent. Other reports showed manufacturing shrank in June for the first time since the recovery began and retail sales unexpectedly declined.
New York Senator Charles Schumer plans to press Bernanke on “potential monetary options, including a new round of full- scale bond buying,” that could help promote economic growth and reduce unemployment in the face of congressional gridlock, said a Schumer aide.