The Federal Reserve made it clear in describing the U.S. economy today that any fault for this year’s sluggish expansion lies outside the central bank.
“Fiscal policy is restraining economic growth,” the Federal Open Market Committee said, with a more direct message than in March when tax and spending policy was described as “somewhat more restrictive.”
Fed Chairman Ben S. Bernanke has repeatedly said that, while Congress needs to make fiscal policy sustainable over the long run, too much tightening right away is harmful. “There is a sense in which monetary and fiscal policy are working at cross-purposes,” Bernanke said in congressional testimony in February.
The FOMC’s bluntness is “very unusual,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, and former chief economist for the Senate Banking Committee. That message “reflects disappointment from Bernanke’s point of view, that there’s a lack of a coherent fiscal policy.”
“The characterization of fiscal policy has gone up one alert level,” agreed Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd., in a report today.
Automatic federal spending cuts known as sequestration took effect on March 1. If no action is taken by Congress, spending will be reduced by $85 billion this year and $1.2 trillion over nine years. Consumers are also contending with a 2 percentage point increase in the payroll tax that took effect in January.
— Federal Reserve (@federalreserve) May 1, 2013