‘Premature’ Fed tightening could stifle US economic recovery

FXstreet.com (Barcelona) - Federal Reserve Chairman Ben S. Bernanke noted today that the U.S. economy remains hamstrung by high unemployment and government spending cuts, and tightening policy too soon would endanger the recovery.

Indeed, “A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke stated today in testimony prepared for a hearing at the Joint Economic Committee of Congress in Washington. Monetary policy is providing “significant benefits,” he said.

Bernanke is by and large the leading the most aggressive economic stimulus in the Fed’s century-long history in an effort to instigate growth and reduce a bloated unemployment rate that stands at 7.5% almost four years into a recovery from the longest and deepest recession since the Great Depression.

While the labor market has shown moderate improvement, according to some, the Fed chairman noted that “high rates of unemployment and underemployment are extraordinarily costly.”

“Not only do they impose hardships on the affected individuals and their families, they also damage the productive potential of the economy as a whole by eroding workers’ skills and -- particularly relevant during this commencement season -- by preventing many young people from gaining workplace skills and experience in the first place,” he added.