Bernanke Says Deficit Reduction Plan Necessary

Washington, DC, Feb. 26, 2010--Federal Reserve Chairman Ben Bernanke said lawmakers need to develop a credible plan to deal with the medium-term deficit or there could be consequences for the economy.

"(The lack of a plan) could affect interest rates," Bernanke told lawmakers Thursday. "It could affect the value of the dollar. And those things could directly or indirectly affect the state of the economy."

With this fiscal year's deficit projected to hit a record $1.6 trillion, lawmakers pushing for stronger action to rein in the deficit sought to use the central-bank chief's appearances to win support for their cause.

"It's very easy for me to say this, because I don't have to grapple with these difficult problems," Bernanke told the House Financial Services Committee members Wednesday.

"But it is very, very important for Congress and the administration to come to some kind of program, some kind of plan that will credibly show how the United States government is going to bring itself back to a sustainable position."

The Fed chairman focused his responses on the medium-term deficit, allowing that it is acceptable for near-term deficits to rise while the economy recovers.

He said deficits need to be brought down to 2.5% to 3% of the nation's gross domestic product to be sustainable.