On Wednesday, Federal Reserve Chairman Ben Bernanke said the the failure of Congress and the White House to reach an agreement on a budget deal has already harmed the economy by lowering consumer confidence and discouraging businesses from making investments due to the lack of certainty.
Why is it that consumer confidence dropped so sharply this week? Why is it that small-business confidence dropped so sharply? Why are markets volatile? Why is business investment among its weakest levels during the recovery? All of these things, at least to some extent, can be traced to the anticipation and concern over the fiscal cliff.
Consumer confidence is at its lowest in four months, and the National Federation of Independent Business’s optimism index is also at its lowest since March of 2010.
Bernanke, who coined the term “fiscal cliff” in February, said a “contractionary” fiscal policy would be “costly.”
“There’s a problem with kicking the can down the road,” Bernanke said. “It could create concerns about our longer-term fiscal situation… it’s in the best interest of the economy to come to a two-part solution.”
Bernanke announced the Federal Reserve would buy “$85 billion in bonds every month until unemployment falls to 6.5%.”