Fiscal cliff: US Fed steps up warnings
rapidly reduce the federal budget deficit, are now "restraining" gross domestic product growth.
"Indeed, under almost any plausible scenario, next year the drag from federal fiscal policy on GDP growth will outweigh the positive effects on growth from fiscal expansion at the state and local level," he said.
Bernanke's warning came as the White House and top officials from Congress are locked in talks to avert the cliff and set a long-term plan for reducing the deficit, which has topped USD 1 trillion a year for four years running.
The cliff comprises two challenges: a drastic spending reduction program, and the expiration of a broad range of "temporary" tax decreases.
Both are to take place on January 1, and together would suck at least USD 500 billion out of the economy, forcing it into recession.
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