The chairman of the U.S. central bank is warning lawmakers not to cut government spending too sharply too soon, saying it could further harm the economy.
Federal Reserve Chairman Ben Bernanke testified before Congress Tuesday, telling members of both the House of Representatives and the Senate the U.S. recession was deeper than the Fed initially estimated. He also warned the struggling economic recovery was "close to faltering."
Bernanke urged lawmakers to make deep cuts in spending, eventually going beyond the $1.5 trillion in cuts sought by a special Congressional panel. But he also warned lawmakers must "avoid fiscal actions that could impede" a sluggish economic recovery.
He also predicted "more sluggish job growth" for a country already facing an unemployment rate that has hovered around nine percent for months, with more than 14 million people out of work.
The Fed's latest effort to spark the economy came last month, when it moved to lower borrowing rates for consumers by substituting short-term securities in its $1.7 trillion portfolio for longer-term holdings.
That maneuver, known as "Operation Twist" has yet to make an impact. Still, Bernanke said the Fed is prepared to take additional action. He also repeated during questioning previous assertions that the central bank has more tools to help boost the economy.
The Fed's main tool is the benchmark interest rate which has already been lowered to almost zero.
The U.S. government said last week that the country's sluggish economy grew a bit faster than first estimated in the April-to-June period, but still not fast enough to reduce the country's high unemployment rate.
A report last week on U.S. consumer sentiment showed Americans are also worried about the troubled housing market and falling stock prices.
Some information for this report was provided by AP and Reuters.