Bernanke warns about deficit; pledges low interest rates

The chairman of the Federal Reserve warned today that mounting deficits threaten the prospect of economic recovery.

In testimony before the House Financial Services Committee, Ben Bernanke urged lawmakers to address the deficit before the baby boomer retirement makes the situation even worse.

“Prompt attention to questions of fiscal sustainability is particularly critical because of the coming budgetary and economic challenges associated with the retirement of the baby-boom generation,” Bernanke said.

“Unless we demonstrate a strong commitment to fiscal sustainability, we risk having neither financial stability nor durable economic growth,” the chairman added.

For his part, Bernanke pledged to keep interest rates low—a “highly accommodative stance of monetary policy,” as he put it–to help spur lending and economic growth.

“The [Federal Open Market Committee] anticipates that economic conditions are likely to warrant maintaining the federal funds rate at exceptionally low levels for an extended period,” Bernanke said.

The Fed chairman forecast that while unemployment would max out within the year, rates would remain unacceptably high.

“Although the unemployment rate is projected to peak at the end of this year, the projected declines in 2010 and 2011 would still leave unemployment well above [Federal Open Market Committee] participants’ views of the longer-run sustainable rate,” he concluded.