Federal policy uncertainty could hurt economy

Federal Reserve Chairman Ben Bernanke said increased taxes and federal spending cuts set for 2013 could hurt the already weak economy if not resolved, according to the Wall Street Journal.

The Bush tax cuts are set to expire Jan. 1, 2013, which would cause tax rates to increase quite a bit. Also, the federal government's automatic spending cuts, agreed upon in last summer's deal to increase the federal borrowing limit, will go into effect that same day.

These actions could slow down the economic recovery, unless alleviated steps are taken, Bernanke told the Senate Budget Committee last week, according to the Wall Street Journal. Uncertainly on the policies alone could hurt the economy.

"I don't know when the uncertainty will become a factor, but surely as we get closer to Jan. 1 and Congress has not given a clear road map for how it plans to proceed, that would certainly affect planning, business decisions and household decisions as they look ahead to next year," said Bernanke, according to the Wall Street Journal. Uncertainty on policy can have a negative influence on consumer confidence, he added.

Bernanke has tried to get Congress and the Obama administration to come up with a long-term plan to shrink the budget deficit, but to execute it slowly so it doesn't harm the economy.

Bernanke pointed to the unemployment rate of 8.3 percent and the share of working-age people in the labor force being at its lowest level in 29 years, to show the economy is still vulnerable, according to Bloomberg.

The unemployment rate only takes into account people who say they are actively looking for a job, not those under or unemployed that aren't pursuing employment.

"The 8.3 percent no doubt understates the weakness of the labor market in some broad sense," Bernanke said. He added that some people have stopped trying to find work or are taking part-time jobs because they can't find full time employment, according to Bloomberg.