Bernanke cited "Fiscal restraint at the federal state and local levels," as a key head wind threatening the recovery.
"Monetary policy is not a panacea," he implored. "Monetary policy by itself is not going to solve our economic problems. We welcome help and support from any other part of the government, from other economic policy makers. Collaboration would be great."
Bernanke's made similar comments in the past, but could take on greater significance if the recovery peters off, or if an escalating crisis in Europe inflicts more harm on the U.S. recovery. Indeed, Bernanke hinted quite strongly that the Fed will take more drastic measures if it concludes that the fall off in employment is the result of new weakness, and not statistical noise, or seasonal effects.
But in the meantime, he offered Congress his familiar prescription -- it amounts to stimulus in the short term paired with a credible long-term path to reduced deficits.
"First is to do no harm as far as the economy is concerned, to avoid a fiscal cliff that would significantly damage the recovery," Bernanke said, referring to automatic tax increases and across-the-board spending cuts scheduled to take effect at the beginning of 2013. "Second to maintain the effort to achieve a sustainable fiscal path over the longer term. [And] Third to use fiscal policy effectively, to have a better tax code to make good use of government spending programs and make them efficient and effective...If Congress does all those things, the ultimate benefits would be substantial."