Federal Reserve Chairman Ben Bernanke added his voice Tuesday to the chorus advising lawmakers and the Obama administration to avoid sequestration cuts, set to take effect on Friday.
The nation's central banker acknowledged the need to substantially reduce federal deficits and debt, but he argued that cuts should be made gradually, rather than via "sharp, front-loaded spending cuts."
"I think an appropriate balance would be to introduce these cuts more gradually and to compensate with larger and more sustained cuts in the longer run to address our longer-run fiscal issues," he told members of the Senate Committee on Banking, Housing, and Urban Affairs.
The nonpartisan Congressional Budget Office has projected that sequestration cuts, which total around $1.2 trillion over 10 years, could subtract about 0.6 percent from economic growth in 2013. CBO Director Doug Elmendorf has also said that sequestration could subtract around 750,000 jobs from the economy this year.
As part of his message that Congress should take action, Bernanke repeated a refrain that he has delivered several times over the course of Congress' many recent fiscal battles: that the central bank cannot nurse the economic recovery all alone.
"Although monetary policy is working to promote a more robust recovery, it cannot carry the entire burden of ensuring a speedier return to economic health," he said.
Then again, he noted—in what has become almost a Bernanke slogan since the economic crisis—that monetary policy is not a "panacea" for all of the nation's various economic problems.
The Fed chairman didn't come to Capitol Hill to admonish members of Congress; the testimony was part of his Semiannual Monetary Policy Report before the committee, in which he answers to Congress about the impact of Fed policy.
In his testimony, Bernanke defended unconventional policies like forward guidance and quantitative easing, which he credits with boosting the economy. Quantitative easing, a program of massive purchases of assets like Treasuries and mortgage-backed securities, has boosted the Fed's balance sheet past the $3 trillion mark.
While some worry that easing creates inflationary risks, Bernanke also credited the purchases and low interest rates with boosting home and auto sales, not to mention employment and household wealth. However, he also acknowledged that the job market "remains generally weak."Because of the loose policy undertaken during Bernanke's tenure, one Senator labeled him a "dove," as opposed to the so-called inflation hawks at the Federal Reserve, who prefer tighter policy to bolster price stability.
Tennessee Republican Sen. Bob Corker accused Bernanke of being the "biggest dove since World War II."
Bernanke struck back, however: "On the other hand, my inflation record is the best of any Federal Reserve chairman in the postwar period, or at least one of the best.".
Though Bernanke and his fellow Fed governors may have succeeded in keeping prices in check, prices are only one half of the Fed's dual mandate. Congress has also tasked the central bank with maintaining full employment, and the unemployment rate remains elevated, at 7.9 percent.
Inflation remains near the thresholds that the Fed has laid out for it, while the job market is falling fall short. Members of the Federal Open Market Committee, which sets interest rates, said in December that they generally expect inflation to remain near or below 2 percent for years to come. However, most members do not expect the jobless rate to drop below 7 percent until 2014 or 2015. The committee has said that it expects to keep the federal funds rate near zero as long as inflation is no greater than 2.5 percent and unemployment is above 6.5 percent.
Bernanke will have yet another chance to defend his policies—and to argue against sequestration cuts—this week. The chairman will also speak before the House Financial Services Committee on Wednesday.