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Bernanke Warns of ‘Fiscal Cliff’ Peril

November 20th, 2012

The U.S. central bank chief is warning President Barack Obama and Congress that failure to reach a compromise on government spending and taxes by year's end would pose a “substantial threat” to the country's fragile economic recovery.

Federal Reserve Chairman Ben Bernanke stepped up his warnings Tuesday that the White House and lawmakers risk sending the world's largest economy “toppling back into recession” if they do not resolve key government financial issues. Washington is calling the January 1 deadline a “fiscal cliff,” with $600 billion in mandated spending cuts and higher taxes affecting almost all U.S. workers.

The central bank has taken repeated steps to pump billions of dollars into the U.S. economy. But Bernanke told the Economic Club of New York that if the U.S. cascades over the fiscal cliff, he does not think the Federal Reserve “has the tools” to offset such an economic shock.

Mr. Obama and the top four congressional leaders started negotiations last week on how to end the tax and spending debate that has stymied top U.S. officials for more than a year. They described their talks as constructive and plan to meet again sometime after the Thanksgiving Day holiday on Thursday, with the goal of resolving the stalemate by late December.

Bernanke said that if a compromise can be reached, it would help cut the nation's high unemployment rate — now 7.9 percent — and boost sluggish economic growth. He said resolution of the spending and tax issues “could help make the new year a very good one for the American economy.”

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