Bernanke: Cuts Could Slow Recovery

CNN/Money reports:

The economy lost some momentum recently, Ben Bernanke acknowledged Tuesday, but the Federal Reserve chairman is still optimistic that the recovery will pick up again in the second half of the year.

In a speech on Tuesday, Bernanke twice called the job market "far from normal" and conceded, "the economy is still producing at levels well below its potential."

But he also said the factors behind recent weakness are likely to fade in coming months.

The economy is still feeling the lingering effects of Japan's earthquake and tsunami, he said. And surging oil prices -- which he blames on stronger demand from emerging markets -- are likely to stabilize.

"With the effects of the Japanese disaster on manufacturing output likely to dissipate in coming months, and with some moderation in gasoline prices in prospect, growth seems likely to pick up somewhat in the second half of the year," he said at the International Monetary Conference in Atlanta, Ga. Tuesday.

Bernanke also called on lawmakers to address the national deficit with a long-term outlook, but cautioned Congress against making any drastic cuts that could derail the economic recovery.

Sharp cuts could be "self-defeating" he said, if they were to "undercut the still-fragile recovery."