NEW YORK, Nov 20 (Reuters) - Federal Reserve Chairman Ben Bernanke said on Tuesday that 2013 could be a "very good year" for the U.S. economy if politicians can strike a quick deal to avoid the so-called fiscal cliff.
The powerful central bank chief called for a credible long-term framework to put the federal budget on a sound path, but warned against action that would needlessly add to the headwinds facing the economy.
He repeated a warning that running over the "cliff" of expiring tax cuts and government spending reductions could derail the U.S. recovery, and said worries over how budget negotiations will be resolved were already damaging growth.
"Such uncertainties will only be increased by discord and delay," he told the Economic Club of New York. "In contrast, cooperation and creativity to deliver fiscal clarity -- in particular, a plan for resolving the nation's long-term budgetary issues without harming the recovery -- could help make the new year a very good one for the American economy."
The economy grew at a tepid 2 percent annual rate in the third quarter and economists expect the final three months of the year will be even weaker. The unemployment rate remains elevated at 7.9 percent, which Bernanke said was still well above levels the Fed thinks are achievable without sparking waged-related price pressures.
Bernanke reiterated the central bank's guidance that it expects to keep interest rates near zero until at least mid-2015, but offered few clues into how the Fed might tweak its bond-purchase program at the start of next year.
"We will want to be sure that the recovery is established before we begin to normalize policy," he said. (Additional reporting by Alister Bull in Washington; Writing by Pedro Nicolaci da Costa in Washington; Editing by Chizu Nomiyama)
The Morning Email helps you start your workday with everything you need to know: breaking news, entertainment and a dash of fun. Learn more