After delivering prepared testimony indicating the Fed was keeping all doors and windows open in its efforts to keep the economy afloat, and one day after telling a House panel further stimulus was possible, Bernanke, answering questions from Senate Banking Committee members, said Thursday more stimulus is not in the near-term cards -- and even if it were, it may not be effective, Forbes reported.
Focusing on the impending breach of the debt ceiling if the White House and Congress don't reach a budget agreement by the Aug. 2 deadline, Bernanke said there's nothing the Fed can do if the stalemate results in the government's default on its debt, a development that would be a "self-inflicted wound" yielding a "calamitous outcome" -- a dramatic increase the budget deficit.
"Whether default is on securities, or on obligations to Medicare recipients, it's a default of some kind," Bernanke said, adding the Fed would be powerless to mitigate the damage if credit-rating agencies downgrade the U.S. government's debt, a move that would undoubtedly make the unemployment picture worse.
In his prepared remarks, which were predicated on lawmakers' ability to keep the government from defaulting on its debt, Bernanke said the economic recovery is "moderate" and "soft," but the medium-term outlook is still bright.
In the best-case scenario, growth in real gross domestic product would reach 2.8 percent by the end of 2011 and 3.5 percent by the end of 2012, Bernanke said, with a concurrent drop in the unemployment rate to 8 percent.
"Of the more than 8.5 million jobs lost in the recession, 1.75 million have been regained," Bernanke said, indicating the road to recovery is a long one.
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