“Economic conditions provide little scope for reducing deficits significantly further over the next year or two,” Bernanke told an audience in Rhode Island. “Indeed, premature fiscal tightening could put the recovery at risk,” he added implying tax cuts should not be allowed to expire at the end of this year.
Bernanke’s policy is in direct contrast to that of Bank of England govenor Mervyn King who has publicly backed the coalition’s government’s plan to slash spending next year.
Bernanke’s comments came as fresh data showed the pace of growth in the US non-manufacturing sector accelerated more quickly than economists had expected.
The jump in the Institute for Supply Management’s services sector index to 53.2 in September from 51.5 in August provided some hope that economic activity picked up in the third quarter.
The reading was above the 52 median forecast by economists. A reading above 50 indicates expansion in the sector.
The index showed services firms took on more workers in September, with the employment component rising to 50.2. Though that reflected only modest hiring, it was above August’s reading of 48.2, which shows the sector shed jobs that month. New orders rose to 54.9 from 52.4.