Federal Reserve Chairman Ben Bernanke recently announced that the Fed would keep interest rates as low as possible until unemployment reaches substantially lower levels:
"The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.
The Committee views these thresholds as consistent with its earlier date-based guidance in determining how long to maintain a highly accommodative stance of monetary policy."
This commonsense approach reflects the reality that our economy is recovering, but continues to struggle. Steep cuts in spending will make it even harder for the economy to recover. Economists generally agree that austerity measures are a drag on economic growth and job creation. Cutting the deficit through spending cuts will shrink the economy, deepen the economic crisis for working families, hurt the middle class, and exacerbate income inequality. Studies have demonstrated that steep cuts in spending will cost jobs. In 2011, it was estimated a five percent cut to Medicaid could result in the potential loss of more than 250,000 jobs.
Before the end of the year, Congress is faced with a set of choices that, depending on the decisions made, will either put Americans back to work or worsen our economic crisis. Rather than focusing on spending cuts as the path to deficit reduction, the best way to reduce the deficit is to put the more than 20 million unemployed and underemployed Americans back to work and help them become taxpayers again.
According to economist Robert Reich, "[W]hen more people are working, more companies are profiting, and economies are expanding, revenues pour into national treasuries."