Testifying before the Senate Banking Committee today, Federal Reserve chairman Ben Bernanke dismissed the findings of several recent reports predicting that House Republicans’ proposal to cut federal spending by $61 billion over a seven-month period would have a negative impact on economic growth:
[A] Goldman Sachs report released last week predicted that the Republican spending cuts would slow growth by as much as 2 percentage points in the second and third quarters of this year. Senate Democrats pounced on the analysis to argue that Republicans were trying to “drag our economy back into a recession.”
But Bernanke said that analysis is off the mark.
“Two percent [reduction in growth] is enormous and would be based on $300 billion in cuts,” Bernanke told the panel in his semiannual report to Congress. “Sixty billion to $100 billion isn’t sufficient to create that kind of effect.”
Although Bernanke didn’t provide a projection of possible jobs losses from the spending bill, he said the proposed spending cuts aren’t likely to lead to the 700,000 job losses predicted by Moody’s Analytics chief economist Mark Zandi.
At most, Bernanke said, the GOP cuts would impact economic growth “at the margins,” with the potential to reduce gross domestic product by only one- or two-tenths of a percent.
Earlier this month, Bernanke told House Budget Committee Chairman Paul Ryan (R., Wis.) that bringing federal spending levels under control was one of the best actions Congress could take to promote economic growth in the short term.