Federal Reserve Chairman Ben Bernanke says a plan from House Republicans to cut $61 billion in spending this year would not harm economic growth.
The GOP's proposed spending cuts, passed as part of a continuing resolution, would probably reduce "growth on the margins" and lower gross domestic product by only one- or two-tenths of a percent, Bernanke told the Senate Banking Committee.
The Fed chairman's estimate contrasts with recent reports from Goldman Sachs and Moody's Analytics that predicted economic harm from a $61 billion spending reduction.
The Goldman Sachs report released last week predicted that the Republican spending cuts would slow growth by as much as 2 percentage points in the second and third quarters of this year. Senate Democrats pounced on the analysis to argue that Republicans were trying to "drag our economy back into a recession."
But Bernanke said that analysis is off the mark.
"Two percent [reduction in growth] is enormous and would be based on $300 billion in cuts," Bernanke told the panel in his semiannual report to Congress. "Sixty billion to $100 billion isn't sufficient to create that kind of effect."
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The GOP's policies are going to have disastrous consequences. Does it really matter whether it is 2 percent or two-tenths of a percent? The current state of economy is not good and those policies are just going to drag the country into the next meltdown. It is the worst time to take an axe to the budget.
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