Federal Reserve Chairman Ben S. Bernanke warned lawmakers Tuesday against cutting the budget too sharply with the U.S. economy still weak and facing new stresses from the European debt crisis.
And the central bank chief expressed some empathy with protesters who have marched on Wall Street and in other cities in recent days complaining of the role of big financial institutions in creating the current economic mess.
"Very generally I think people are quite unhappy with the state of the economy and what’s happening. They blame, with some justification, the problems in the financial sector for getting us into this mess and they're dissatisfied with the policy response here in Washington," Bernanke told Congress' Joint Economic Committee.
"On some level I can’t blame them," he said. "Like everyone else, I’m dissatisfied with what the economy is doing right now."
Bernanke noted the difficulty for Congress to rein in the long-term federal budget deficit while trying "to avoid fiscal actions that could impede the ongoing economic recovery."
But he said that one factor weighing down the U.S. recovery is "the increasing drag" from cutbacks in government spending.
"Notably, state and local governments continue to tighten their belts by cutting spending and employment in the face of ongoing budgetary pressures, while the future course of federal fiscal policies remains quite uncertain," Bernanke told the committee.
He admitted that addressing the long-term budget deficit without further hindering the weak recovery is "a complex situation." And he had unusually sharp words for the bitter debate over raising the U.S. debt ceiling this summer, which led Standard & Poor's to downgrade the nation's credit rating and also hurt market confidence.
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