Fed Chief Bernanke: Moderate Recovery Signals Time to Cut Deficits

Federal Reserve Chairman Ben Bernanke said economic recovery should be expected in the oncoming quarters with a few restraints.

“On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters,” Bernanke said in testimony to Congress today. “Significant restraints on the pace of the recovery remain, including weakness in both residential and nonresidential construction and the poor fiscal condition of many state and local governments.”

Testifying before Congress on Wednesday,  Bernanke does not see inflation as a threat, and as a result will keep the main interest rate low.

As Fed officials gear up for their late April policy meeting, they haven’t shown much inclination to veer from their plan to keep short-term interest rates near zero for the foreseeable future. That could change if inflation picks up or economic growth accelerates. But many measures of inflation are below the Fed’s informal target of 2% and continue to slow.

He also said that it is time for the federal government to move away from stimulus spending to cut deficits. This will be key to reducing long-term interest rates and boosting economic confidence in the United States.

Bernanke indicated “the current path of fiscal policy is a serious long-term threat to the health of the national economy – there is no single issue that is more worthy of political sacrifice from elected representatives than this one.”

So what do you think? Is it time to cut spending or continue spending to achieve real job growth?