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Wed May 16, 2012, 05:56 PM

Fed: Fiscal Standoff Poses 'Sizable Risk' To US Recovery [View all]

Source: The Hill

Federal Reserve officials see the political standoff over the nation's fiscal course as a "sizable risk" to the economic recovery.

When Fed members last met to set the policy of the nation's central bank, officials noted that the uncertain trajectory of the nation's finances could be keeping businesses on the sideline. As both parties spar over major policy changes set to take effect at the beginning of next year, central bank officials warned that if that "sharp fiscal tightening" were to take effect, it would weigh down the economy.

The minutes of the April meeting of the Federal Open Market Committee (FOMC), released Wednesday, reveal that Fed officials still believe the economy is expanding moderately as labor market conditions gradually improve. Following that meeting, the Fed opted to hold steady on its existing policies of near-zero interest rates held through the end of 2014.

The minutes mark the latest example of the central bank fretting about what impact Congress and the White House might have on an economic recovery that still appears unstable. Fed Chairman Ben Bernanke has repeatedly called on Congress to adjust its pending fiscal policy, noting that the "fiscal cliff" set to take effect at the beginning of the year would be so extreme that it could throw the recovery off-kilter. He has warned that if policymakers do not replace the automatic spending cuts and tax hikes currently set to take effect with more gradual fiscal tightening, the Fed lacks the tools to make up for the resulting economic contraction.

Read more: http://thehill.com/blogs/on-the-money/economy/227797-fed-fiscal-standoff-poses-sizable-risk-to-us-recovery

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