Bernanke: Over to You, Congress

Nothing new from the Fed, just another lecture to Congress.

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Ben Bernanke Thursday gave Wall Street two more uncomfortable weeks of watchful waiting. He also urged Congress to do just the opposite: get it together and move.

In his quarterly economic outlook testimony, the Federal Reserve chairman gave no hints about the likelihood of further monetary stimulus in the wake of recent disappointing economic indicators.

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That's not for lack of trying on the part of members of the Joint Economic Committee, who repeatedly asked the chairman about the potential for, and potential effects of, a third round of quantitative easing, or QE3. The chairman didn't bite, leaving the door slightly ajar.

"The Federal Reserve remains prepared to take action as needed," he told lawmakers, adding that there are "a number of different options" at the Fed's disposal.

Implementing any of those options, he said, would depend upon economic conditions, which the Federal Open Market Committee will consider at its next meeting, on June 19-20. The key will be the job market, which has seen four straight monthly declines in the number of new jobs added.

"The weakness in labor markets in the last couple of months may reflect the end of the catch-up period in which employers were offsetting the very sharp declines in employment that happened at the end of the recession." he said. If that's true, then the Fed's policy-making committee will have to ask itself a key question: "Will there be enough growth going forward to make material progress in the unemployment rate?"

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Bernanke noted that warm weather may have accelerated job growth in the winter. If so, the job market may be facing payback from those early bumps.

There was plenty of market anticipation of monetary stimulus hints in advance of today's testimony, fueled by Fed Vice Chair Janet Yellen, who in a Tuesday night speech before the Boston Economic Club indicated support for more Fed easing.

"There are a number of significant downside risks to the economic outlook, and hence it may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest," she said, adding later that "scope remains for the FOMC to provide further policy accommodation."

Stock markets like the idea of easing—the Dow Jones Industrial Average jumped more than 100 points this morning in advance of Bernanke's testimony—but not everyone is excited about more money in the economy.

"I wish you would take a third round of quantitative easing off the table," Texas Republican Rep. Kevin Brady, the Joint Economic Committee Vice Chair, told Bernanke today.

But Bernanke voiced his own concerns about lawmakers' part in promoting recovery, urging lawmakers to get their acts together as the so-called "fiscal cliff" approaches at the end of the year.

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"Monetary policy is not a panacea. It would be much better to have a broad-based policy effort addressing a whole variety of issues," he told committee members. "I'd be much more comfortable, in fact, if Congress would take some of the burden from us."

Bernanke pushed Congress to deal with the spending cuts set to kick in at the end of 2012, as well as the scheduled expiration of policies including the Bush-era tax cuts, a scenario that has come to be known as the “fiscal cliff.” That drastic shift in fiscal policy would “pose a significant threat to the recovery,” Bernanke said, also signaling that acting later rather than sooner could itself threaten the economy.

"Moreover, uncertainty about the resolution of these fiscal issues could itself undermine business and household confidence," he added.

As that uncertainty grows and other economic concerns loom, like troubles mounting in Europe and a slowdown in China, Bernanke and his fellow FOMC members find themselves running out of ammunition..