At the Federal Reserve’s last conference meeting in Jackson Hole, Wyoming, Federal Reserve Chairman Ben Bernanke gave the Fed’s outlook for the U.S. economy.
Taxmageddon was one of Bernanke’s biggest concerns, as he warned of a “massive fiscal cliff.” Bernanke suggested that Congress “figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.” Bernanke’s statements echoed the CBO’s latest report on the economy that also warned of a “massive fiscal cliff”, one that would undoubtedly lead to a recession in 2013.
Bernanke has made it clear in his past warnings to Congress that Taxmageddon’s impact would be counterproductive to the recovery. Earlier this year, Bernanke told the Senate Banking Committee that Taxmageddon “would probably knock the recovery back into a recession and cost a lot of jobs, and would greatly delay the recovery that we’re hoping to facilitate.”
Although the Federal Reserve is doing its best to facilitate a recovery, Former Fed Governor, Robert Heller, stated that the “Fed will not act before fiscal cliff resolved.” If true, the Fed will continue to stall any significant monetary action until Congress reaches a decision on tax cuts. No action by the Fed could lead to a dire predicament, however, as the recovery continues to be hindered by negative job reports, depressing economic growth, and a looming fiscal cliff.
With 380,000 leaving the labor force in August, the weariness of the general public over the economy is evident. The August job report is not only troubling for the Department of Treasury, but it is worrisome for the Federal Reserve who is responsible for maintaining full employment.
It is imperative that Congress prevent next year’s massive series of tax hikes. This would be beneficial to families and small employers and would help with the Federal Reserve’s efforts to facilitate economic growth.