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Members of Congress sharply questioned Federal Reserve Chairman Ben Bernank Over Inflation Threat

Republicans grill Bernanke over inflation threat

Feb. 9, 2011, 6 p.m. EST
Article Published Associated Press

Article Posted by Public Blog News Posting Servive Group

WASHINGTON (AP) — Members of Congress sharply questioned
Federal Reserve Chairman Ben Bernanke Wednesday over whether the Fed’s
policies are raising the risk of higher inflation in the months ahead.

House Budget Committee Chairman Paul Ryan, R-Wis., said he is
concerned that the Fed won’t be able to detect inflation until “the cow
is out of the barn” and inflation is already spreading dangerously
through the economy.

Bernanke acknowledged that inflation is surging in emerging
economies. But he downplayed the risks to the U.S. economy, even as
lawmakers expressed concerns about rising gasoline and food prices.

Inflation in the United States remains “quite low,” Bernanke
said. He blamed higher prices on strong demand from fast-growing
countries such as China— not the Fed’s policies to stimulate the
economy, including buying $600 billion worth of Treasury debt.

Bernanke’s remarks suggest the Fed will stick with the
bond-buying plan through June, as scheduled. The program is aimed at
invigorating the economy by lowering rates on loans and boosting prices
on stocks.

It was Bernanke’s first appearance before the House since
Republicans took control last month. He faced tough questions from
them, despite being a member of the party.

Ryan worries that the Fed’s stimulus policies, including the
debt purchases, could trigger inflation or fuel speculative buying of
stocks or other assets.

“Many of us fear monetary policy is on a difficult track,”
Ryan said.

Rep. Todd Rokita, R-Ind., seemed skeptical of the Fed’s
ability to fend off inflation before it gets out of hand. In the Fed’s
history, when did the Fed “get it right?” Rokita asked.

Bernanke said former Fed Chairman Paul Volcker brought down
double-digit inflation during the 1980s by pushing up interest rates to
levels not seen since the Civil War.

The Fed chief said he was confident the Fed has the political
will to boost interest rates and snuff out inflationary forces before
they take hold.

Bernanke did acknowledge that rising gas prices are a threat
to the economy. Prices have been around $3 a gallon nationally. If they
were to go above $4 a gallon, that would “take a significant amount of
disposable income away from people,” he said.

Still, Bernanke defended the bond-purchase program. He said it
is needed to ease high unemployment and credited all the Fed’s stimulus
policies with creating or saving 3 million jobs over the past several

The unemployment rate was 9 percent in January after the
fastest two-month decline in 53 years. Bernanke said the drop is
encouraging but cautioned that it will take four or five years for
hiring to return to normal — around 5 percent or 6 percent. He said the
economic recovery won’t be assured until companies step up hiring on a
consistent basis.

Ryan and Bernanke agreed that Congress and the White House
must have a plan to reduce the government’s $1 trillion-plus deficits.

Ryan favors budget cuts to get the deficits under control.

Bernanke didn’t endorse any specific policies on
deficit-cutting. He said lawmakers should hold off on spending cuts or
tax increases until the economy is in better shape.

Bernanke again warned Republicans that they shouldn’t play
political games with the Treasury Department’s request to raise the
government borrowing authority.

Treasury has asked to raise the $14.3 trillion debt ceiling.
House Republicans have vowed to make deep spending cuts a precondition.

“We do not want to default on our debts. It would be very
destructive,” Bernanke said.

At the same time Bernanke was testifying, Rep. Ron Paul,
R-Texas, held a hearing on whether the Fed’s bond-buying program and
record-low interest rates can really help create jobs. Paul, an
outspoken critic of the central bank, favors abolishing the Fed.

Lawmakers at that hearing also expressed concerns that the
Fed’s policies will spur inflation.

“If the Fed didn’t see this mess coming, will they see the
recovery starting in time to turn off the printing presses to stop
inflation,” asked Rep. Frank Lucas, R-Okla. “I am not sure their vision
in the future will be any better than in the past.”


AP Economics Writer Martin Crutsinger contributed to this


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