Officials from the New York Fed and Federal Reserve testified to Congress about the potential job-killing contagion from the European financial crisis.
NEW YORK (CNNMoney) -- The European crisis is a potential job-killer for the United States and could hit pensions and 401(k)s, Federal Reserve officials told Congress on Friday.
William Dudley, president of the New York Federal Reserve Bank, told lawmakers that deterioration in the European economy could reduce demand for U.S. products.
This would "hurt growth here in the United States and would have a negative impact on U.S. jobs," Dudley said in prepared testimony.
"It is important to recognize that the euro area is the world's second largest economy after the U.S. and an important trading partner for us," he said. "Also, Europe is a significant investor in the U.S. economy, and vice versa. Thus, what happens in Europe has significant implications for our economy."
"This could tighten the availability of credit to U.S. households and businesses," Dudley said. "It could also cause equity prices to fall and this would have a negative impact on Americans' pension and 401(k) holdings."
Steven Kamin, director of the division of international finance at the Federal Reserve, backed up Dudley's comments with equally dire testimony about the European contagion.
"Here at home, the financial stresses in Europe are undoubtedly spilling over to the United States by restraining our exports, helping to push down business and consumer confidence, and adding to pressures on U.S. financial markets and institutions," said Kamin.
He said the European financial crisis could dry up funding from European and other financial institutions and make it harder and more expensive for U.S. households and businesses to get loans.
The European debt crisis has roiled the markets in recent months, as investors fret over the fate of countries like Italy and Spain, which have large but stagnant economies and costly debt, with relatively high bond yields.
European leaders recently agreed to move forward on a new fiscal pact, which would impose penalties on member nations that failed to keep their deficits within 3% of gross domestic product.
But the agreement didn't have much influence over European markets. London's FTSE ( ), the DAX ( ) in Frankfurt and the CAC 40 ( ) in Paris have all declined over the last five days between 2% and 6%.
Also, the Italian 10-year bond yield continues to hover near 7%. When Ireland, Portugal and Greece crossed that level, they required a bailout from their neighbors.
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