"This is a problem we need to deal with, but unfortunately we're not going to take this on until after the election," said Rep. Daniel Lipinski (D-Ill.), referring to the fiscal cliff.
"My belief is that after the election, we'll sit here and the leaders will say on Dec. 24, 'We've reached no conclusion, and we're going to extend everything for two to three months until the new Congress comes in.' "
But moving the cliff out a few months or even longer carries risks. For one thing, economists said, it could trigger a credit downgrade. It also would be likely to increase the uncertainty and prompt more companies to adopt contingency plans.
Bernanke declined to endorse specific tax extensions or spending cuts, saying what's needed is a "combination of sensible policies that allow the recovery to continue over the next year or two, with a long-term credible plan for putting our budget on a sustainable path."
If Congress can't compromise on a new budget, automatic cuts will take effect under the so-called sequester outlined in the Budget Control Act. For defense, the 10% elimination would shave about $53 billion from the budget, to $472 billion.
"People in the industry are really worried a train wreck could come.... They are starting to hedge," said Todd Harrison, a senior fellow at the Center for Strategic and Budgetary Assessments.
The impact of the uncertainty, he said, will be magnified at thousands of smaller second- and third-tier contractors, some of which are already asking, "How can you best position a business to prepare for this shock?"
John Raine is one of them. His Anderson, Ind., company has been making military field gear for 27 years. The U.S. withdrawal from Iraq and the drawdown in Afghanistan have already cost him significant business, forcing him to lay off a worker for the first time ever.
With potential defense cutbacks coming sooner or later, and higher taxes on the horizon, Raine said there was only one thing he could do.
"You're going to batten down the hatches," he said. "It's the psychology."
Times staff writer Jamie Goldberg contributed to this report.
