Political India: Engaging America

The United States' recovery from the ongoing economic crisis was ‘much less robust' than what the Federal Reserve had hoped it would be and recent revisions of government economic data showed the recession as having been even deeper, and the recovery weaker, than previously estimated, according to Ben Bernanke, Chairman of the Fed.

In a speech that sought to shift more responsibility for driving the recovery to fiscal policy rather than retain the focus on monetary policy under the Fed Mr. Bernanke added that recent bouts of elevated volatility and risk aversion in financial markets were partly in reaction to fiscal concerns in the U.S. and abroad.

Touching upon the role of the bitter, macroeconmically-damaging debt limit negotiations between Democrats and Republicans earlier this summer, Mr. Bernanke said that the controversy resulting in the downgrade of the U.S. long-term credit rating by the Standard and Poor's rating agency “contributed to the financial turbulence that occurred around that time.”

Four key steps

By way of policy response the Fed Chairman noted that four key steps in terms of fiscal reform were needed. First, he said, it was necessary to achieve long-run fiscal sustainability; second, the federal government ought to avoid fiscal actions that could impede the ongoing economic recovery; third, fiscal policy should aim to promote long-term growth and economic opportunity; and finally, there was a need to improve the process for making long-term budget decisions so as to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy.