Bernanke warns defiicit needs redress

WASHINGTON, Jan. 7 (UPI) -- U.S. Federal Reserve Chairman Ben Bernanke said Friday the economy looks improved, but warned the federal deficit could undermine the recovery.

In testimony prepared for an appearance before the Senate Budget Committee, Bernanke said if the deficit is not brought under control, "the economic and financial effects would be severe."

He said "broader financial turmoil" would arise that would have "adverse long-run effects on U.S. output, incomes and standards of living."

But Bernanke said, all things being equal, 2011 looks more promising now than it did in the third quarter of 2010.

"Real consumer spending rose at an annual rate of 2.5 percent in the third quarter … and available indicators suggest that it likely expanded at a somewhat faster pace in the fourth quarter," he said.

In his prepared remarks, Bernanke did not mention the $600 billion bond purchasing program announced in November that some Republicans have urged him to rescind on fears it could spark a run of inflation.

"Recent data show consumer price inflation continuing to trend downward," Bernanke said.