The Federal Reserve rarely comments on fiscal policy. Instead, it tries to keep its distance from politics. But in a speech Monday evening Fed Chair Ben Bernanke revealed his stance on Congress' runaway spending: he doesn't like it. His comments provide insight into the course he believes Congress should be on and how the Fed could help.
The Deficit Matters, But Not Now
The speech was almost entirely about the deficit. He explained that it has been entirely too high in recent years. He goes through various ways that Congress could act to begin to reduce it, and says it's very important they do so -- but not now. Here's the money quote:
Economic conditions provide little scope for reducing deficits significantly further over the next year or two; indeed, premature fiscal tightening could put the recovery at risk. Over the medium- and long-term, however, the story is quite different.
It's pretty clear form this that Bernanke isn't actually calling for deficit cuts for the next year or two. Instead, he wants an aggressive plan for deficit reduction in place for when the recovery is on more stable footing.
Did He Just Say to Extend the Bush Tax Cuts for Everyone?
But wait a second. Bernanke just said that deficit reduction measures over the next two years "could put the recovery at risk." That means he would worry about any means for deficit cutting in the short term. Although he didn't come out and say it, this appears to indicate that Bernanke would support a temporary extension of the Bush tax cuts -- for everyone.