WASHINGTON — The nation needs to “begin planning now” to reduce the budget deficit, Federal Reserve Chairman Ben Bernanke said Wednesday, arguing that even as the government acts to bolster the economy in the short run, it must ensure that spending and revenue will come into line in the longer term.
“Congress and the administration face formidable near-term challenges that must be addressed,” Bernanke told the House Budget Committee, according to prepared testimony. But he warned that the economy will suffer “unless we demonstrate a strong commitment to fiscal sustainability in the longer term.”
Bernanke even connected recent swings in the market for U.S. Treasury bonds to worries about the nation’s long-term deficits. The interest rate that government must pay to borrow money for 10 years or more has risen sharply in the past two weeks, as investors in the United States and around the world have become more wary of the nation’s growing debt load.
“These increases appear to reflect concerns about large federal deficits,” Bernanke said, adding that other causes include investors moving money away from government bonds as they were willing to take more risk, and technical factors.
The federal debt as a percentage of the nation’s annual economic output looks set to rise from 40 percent before the onset of the financial crisis to about 70 percent in 2011, Bernanke said, which would leave that percentage at its highest level since the 1950s.
