Fiscal cliff: US Fed steps up warnings

With President Barack Obama's administration and Congress locked in crunch talks on avoiding the cliff and slashing the budget deficit, Bernanke said rising cuts to federal spending were already holding back growth.

"Congress and the administration will need to protect the economy from the full brunt of the severe fiscal tightening at the beginning of next year that is built into current law – the so-called fiscal cliff," the US central bank chief said yesterday in a speech in New York.

"The realisation of all of the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the

recovery," he said, according to the prepared text.

"Indeed, by the reckoning of the Congressional Budget Office and that of many outside observers, a fiscal shock of that size would send the economy toppling back into recession."

Bernanke said the Federal Reserve already views growth as disappointingly slow and troubled by threats from the eurozone crisis, slow job creation and the reticence of banks to loosen lending standards -- which Bernanke said is holding back

recovery in the housing sector.

The unemployment rate, currently 7.9 per cent, remains "well above" what Fed officials want to see, Bernanke said, adding that the country has "some way to go before the labour market can be deemed healthy again."

But Bernanke pointed out

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