Federal Reserve press conference, 2011-06-22 — Chair Ben Bernanke

Question (Jon Hilsenrath, Wall Street Journal): If I may follow up, why give guidance on—sorry. If I may follow up, why give guidance on one policy tool but not give guidance on another policy tool when the Fed has talked about those two policy tools working together?
Answer: No, that’s a good question. It’s something we have on the table, something we’ve thought about. But to this point, we haven’t taken that step.

Question (Darren Gersh, PBS NewsHour): Darren Gersh with Nightly Business Report on PBS. If I could follow up on what he just said, there seems to be a growing view in the country that the deficit is the problem with jobs, and that immediate cuts in the deficit would grow the economy and immediately create jobs. Many economists disagree with that. Do you want to go a little further and maybe talk about that issue, and whether you agree with that view that seems to be taking root?
Answer: I don’t think that sharp, immediate cuts in the deficit would create more jobs. I think in the very short run that we are seeing already a certain amount of fiscal drag coming from state and local governments, as well as from the withdrawal of previous federal stimulus. So I think in the very short run that, you know, the fiscal tightening is—is, at best, neutral but probably somewhat negative for job creation. I think what people will understand, should understand, is that our budgetary problems are very long run in nature. The projections made by the CBO, for example, talk about where our debt-to-GDP ratio will be in 2020, 2025, and so on. That doesn’t mean we should wait to act. The sooner we can act, the better. But the most efficient and effective way to address our fiscal problems—and, again, I think this is extremely important—is to take a longer-run perspective, not to focus the cuts heavily on the near term. But by taking a long-run perspective and making a credible plan for reducing future deficits, we’ll lower interest rates, or at least prevent them from rising, and we will increase confidence. And that could be very constructive. But if it’s entirely focused on the near term, I don’t think that’s the optimal way to proceed.