Stronger economic growth could be Ben Bernanke's Godot. Although the US Federal Reserve chairman says he is keen on reducing deficits, he doesn't want US lawmakers to do so aggressively while the American recovery is weak. Trouble is, there's no sign of growth gathering much steam. Waiting for a robust recovery before making meaningful spending cuts is looking more and more like a fool's errand.
The Fed boss's semiannual report to Congress, delivered on Tuesday, is usually limited to monetary policy. But the central bank's hefty stimulus efforts are in conflict with the relatively tighter grip on the purse-strings within the Capitol. So Bernanke took the opportunity to advise lawmakers that deficit-reduction measures, while needed, should be back-ended, arguing that the still-fragile economy doesn't need an additional fiscal headwind.
There's some urgency to his recommendation. This Friday, budget cuts of $100 billion will hit Washington -" the first of 10 annual installments that Congress mandated in 2011 should it fail to come up with alternative deficit-slashing measures. Few in the House or Senate think that the scheduled cuts, known as the sequester, are particularly well-chosen, but agreement on a different approach remains elusive.
Bernanke, however, has been saying the same thing since 2010, when the economy looked much worse. After three years with US growth averaging two per cent and unemployment below eight per cent and falling, his call to delay pain is sounding increasingly hollow. This year, the Fed projects growth between two per cent and three per cent. In 2014 and 2015, it expects a bit better. But the central bank's long-run growth estimate is no more than 2.5 per cent a year. The economy is, in essence, already on that path, so it's not clear why Bernanke thinks things will get much better. And, if the next two years will see slightly stronger growth than the trend, then that's the best time to absorb the impact of the scheduled budget cuts, which may slice a half percentage point off GDP growth this year.
There's no good time for austerity: it always hurts. With healthcare inflation, demographics and debt costs pointing to even tougher budget choices in the coming decades, now looks no worse a time - and perhaps a better one - than any other for Uncle Sam to start tightening his belt.
The Fed boss's semiannual report to Congress, delivered on Tuesday, is usually limited to monetary policy. But the central bank's hefty stimulus efforts are in conflict with the relatively tighter grip on the purse-strings within the Capitol. So Bernanke took the opportunity to advise lawmakers that deficit-reduction measures, while needed, should be back-ended, arguing that the still-fragile economy doesn't need an additional fiscal headwind.
There's some urgency to his recommendation. This Friday, budget cuts of $100 billion will hit Washington -" the first of 10 annual installments that Congress mandated in 2011 should it fail to come up with alternative deficit-slashing measures. Few in the House or Senate think that the scheduled cuts, known as the sequester, are particularly well-chosen, but agreement on a different approach remains elusive.
Bernanke, however, has been saying the same thing since 2010, when the economy looked much worse. After three years with US growth averaging two per cent and unemployment below eight per cent and falling, his call to delay pain is sounding increasingly hollow. This year, the Fed projects growth between two per cent and three per cent. In 2014 and 2015, it expects a bit better. But the central bank's long-run growth estimate is no more than 2.5 per cent a year. The economy is, in essence, already on that path, so it's not clear why Bernanke thinks things will get much better. And, if the next two years will see slightly stronger growth than the trend, then that's the best time to absorb the impact of the scheduled budget cuts, which may slice a half percentage point off GDP growth this year.
There's no good time for austerity: it always hurts. With healthcare inflation, demographics and debt costs pointing to even tougher budget choices in the coming decades, now looks no worse a time - and perhaps a better one - than any other for Uncle Sam to start tightening his belt.