Bernanke warns of threat to economy from Europe

Yuri Gripas / Reuters

U.S. Federal Reserve Chairman Ben Bernanke arrives to testify at the House Budget committee hearing on the state of the Economy on Capitol Hill in Washington February 2, 2012.

By msnbc.com staff and wires

The United States remains within the danger zone of infection from Europe's debt crisis, but the Federal Reserve will do all?it?can to shield the U.S. economy from contagion,?Fed Chairman Ben Bernanke?said Thursday.

He also warned Congress to be careful not to let?its desire to cut?deficits harm the?economic recovery.

"Even as fiscal policymakers address the urgent issue of fiscal sustainability, they should take care not to unnecessarily impede the current economic recovery," Bernanke said in prepared testimony before the House Budget Committee. "Fortunately, the two goals ... are fully compatible."?

Bernanke said he was seeing signs that some of the uncertainty dampening U.S. business investment, including European banking woes, might be waning. But he said it was far too soon to say whether the United States could remain unscathed.

"Risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home," Bernanke told lawmakers in prepared remarks.

"We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy."

Bernanke maintained a cautious tone on the U.S. outlook following a decision at a Fed policy meeting last week to announce that interest rates are likely to remain near zero until at least through late 2014.

At a news conference after that meeting, Bernanke indicated the central bank was considering additional monetary easing, but he offered no fresh hints of such plans in his testimony.

After slashing interest rates to near zero in late 2008, the Fed bought $2.3 trillion in bonds in a further effort to spur the economy. Many analysts expect it will further expand its portfolio in the months ahead with another round of purchases

Federal Reserve chairman Ben Bernanke discusses his outlook on the economy, noting a sluggish labor market and increasing debt risking, producing serious economic consequences.

Bernanke is also appearing two days after the Congressional Budget Office estimated that the deficit will top $1 trillion for a fourth straight year and could stay around that level for years.

Republicans have been critical of the Fed's efforts to support the economy. Many have argued that keeping rates too low for too long could escalate inflation. And they've stressed that cutting government spending and lowering taxes are necessary to boost growth.?

Reuters and The Associated Press contributed to this report.

Source: http://bottomline.msnbc.msn.com/_news/2012/02/02/10300349-bernanke-warns-of-threat-to-economy-from-europe

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