(MENAFN - Kuwait News Agency (KUNA)) US Federal Reserve Chairman Ben Bernanke on Tuesday warned lawmakers the looming fiscal cliff remains a "substantial threat" to economic growth but its resolution could yield a "very good year".
The current dispute over the expiring USD 600 billion in tax cuts and government spending reductions on Capitol Hill is already causing uncertainty on Wall Street, Bernanke during a speech at the Economic Club of New York.
"Such uncertainties will only be increased by discord and delay," he said in remarks prepared for delivery to the Economic Club of New York.
"In contrast, cooperation and creativity to deliver fiscal clarity -- in particular, a plan for resolving the nation's long-term budgetary issues without harming the recovery -- could help make the new year a very good one for the American economy," he said. "The realization of all of the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the recovery." Bernanke said several factors have weighed on the nation's economic growth: Long-term unemployment has reduced many workers' skills and led some who have lost jobs to stop looking for one.
Companies have spent less on machinery, computers and other goods, reducing their production capacity. Stricter lending rules and uncertainty about the economy may have discouraged would-be entrepreneurs from starting more companies, the Fed chief said.
Even assuming that the economy's potential growth has declined, Bernanke said that unemployment, now at 7.9 percent, remains abnormally high.
Bernanke suggested, though, that the drags on economic growth should fade as the economy heals.