Federal Reserve Chairman Ben Bernanke says Congress needs to create a plan to manage the country's debt, because the federal budget "appears to be on an unsustainable path."
Testifying before the House Budget Committee on the state of the economy, Bernanke said lawmakers should take decisive action to show investors that the country can get back on the right financial path. But he did not offer specific remedies for Congress.
As Congress prepares to take up emergency spending legislation in the next few weeks, the deficit has created a "structural budget gap that is both large relative to the size of the economy and increasing over time," Bernanke said.
"We need to convince markets in the medium and longer term that we have a sustainable fiscal path for balancing our budget or at least bringing our deficits down," he said.
"If confidence is lost in our long-term fiscal stability, we will see our interest rates go up quite a bit and that would affect the consumer's ability to buy houses, etc., it would slow our economy, and it would put pressure on the balance sheets of financial institutions," he said.
Bernanke says the Fed has a long-term plan for managing monetary policy, and that Congress should have a similar plan for managing the fiscal side.
"Right now, there's not anything on the table," he said.
But Bernanke was not bearish on the European debt crisis, saying leaders are " aggressively" handling their financial crisis, and Europe will have only a "modest" impact on U.S. growth. (Source)