Ezrati’s Economic Outlook: Bernanke’s ‘Fiscal Cliff’

Fed chairman has a point in warnings about the restraints set for 2013.

Federal Reserve Chairman Ben Bernanke should win a prize for the tone of his recent remarks to Congress. For telling both representatives and senators that the country was approaching a “massive fiscal cliff,” he surely deserves the melodrama-in-everyday-life award. But if Bernanke chose unusually dramatic language to make his point, he had one nonetheless, and maybe the shock value was worth it. 

His remarkable phrase refers specifically to the economic danger of the fiscal restraint already scheduled to take effect on Jan. 1, 2013. A sudden cut in spending and a sudden rise in taxes, as will occur in 2013, when the Bush tax cuts are set to expire, could cripple an already subpar recovery and inadvertently compound budget problems. More significant, however, is the chairman’s implicit reminder in these remarks that for all the need to control deficits and the budget, policy makers must also consider how tax and spending decisions impact the economy, immediately and over the long run. Deficits and budget reform are more complex matters than many on both sides of Washington’s political divide seem to believe. His remark also served as a reminder to politicians, and, through them, to the public generally, that there is only so much the Fed can do.

About the Author

Milton Ezrati

Milton Ezrati

Milton Ezrati is senior economist and market strategist for Lord Abbett & Co. and an affiliate of the Center for the Study of Human Capital and Economic Growth at the State University of New York at Buffalo. His latest book, Thirty Tomorrows, linking aging demographics and globalization, will appear next summer from Thomas Dunne Books of St. Martin’s Press. See more of his articles about the economy here.

 

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