Federal Reserve Chairman Ben S. Bernanke testifies before the House Budget… (Jim Lo Scalzo, European…)
Reporting from Washington — Even as Federal Reserve Chairman Ben S. Bernanke described the recovery as "frustratingly slow," Republican lawmakers lit into the central bank chief's latest efforts to boost the economy.
In testifying before the House Budget Committee, Bernanke said Thursday that the economy had been improving recently — with consumer spending, manufacturing and job growth up in recent months.
But he repeated his cautious outlook for the economy, mentioning uncertainties about Europe, the still-depressed U.S. housing market and the ability of consumers to keep spending in the face of stagnant incomes, tight credit and weak confidence.
With unemployment high and the economy looking as if it will grow only modestly, the Fed last week decided to extend its pledge to hold short-term interest rates near zero through at least late 2014 to reassure investors and stimulate economic activity.
Rep.Paul D. Ryan(R-Wis.), chairman of the House Budget Committee, sharply criticized the policy, saying it "runs the great risk of fueling asset bubbles, destabilizing prices and eventually eroding the value of the dollar."
"The prospect of all three," he said, "is adding to uncertainty and holding our economy back."
Ryan also expressed concerns that the Fed would veer from its role as an inflation fighter as it tries to reduce unemployment by bolstering growth with prolonged easy-money policies. The Fed has a dual congressional mandate of maintaining price stability and maximizing employment.
Bernanke told committee members that these two objectives are "generally complementary," but when they are not, Fed policymakers would take a "balanced approach" to bring inflation and employment to their desired levels.
Ryan retorted: "My interpretation of that is the Fed is willing to accept higher levels of inflation than your preferred rate in order to chase your employment mandate."
Bernanke responded that "we will not actively seek to raise inflation or to move away from the target," which Fed policymakers last week set explicitly at 2%. "We're always trying to bring inflation back to the target."
Bernanke's at-times-sharp exchange with Republican lawmakers reflected the continuing, highly charged partisan climate in Congress as the slow recovery nears its third year in June with unemployment at 8.5% and more than 5.5 million people out of work for more than six months.
On Friday, the government will report the latest unemployment rate and job numbers for January.
Democratic members of the Budget Committee sought to get Bernanke's endorsement for an extension of the payroll tax cut, which expires this month. He declined to take a position on it.
Others criticized the Fed for keeping interest rates so low that the policy was penalizing savers, especially seniors and others on fixed income. Bernanke acknowledged the hardship it imposes on some people, but said the Fed's policy was to create a stronger economy.
"If you have a weak economy, you're not going to get good returns on all the other assets," he said.
Bernanke also took heat from Rep. Scott Garrett. The New Jersey Republican complained that Bernanke was meddling in congressional affairs by sending lawmakers a Fed white paper on housing policies last month that urged them to revive the market.
"We were trying to provide pros and cons, analysis, background," Bernanke said.
In his prepared remarks and two-hour exchange with lawmakers, Bernanke also renewed his call for policymakers to put the U.S. debt and budget situation on a sustainable path to avoid serious economic consequences.
The Fed chief pointed out that the nation's federal deficit over the last three fiscal years has averaged 9% of gross domestic product, the value of all goods and services produced.
He also noted that a continuing high level of government debt would reduce productivity growth and subject the nation to greater indebtedness to foreign countries as well as risks of economic shocks.
At the same time, Bernanke repeated that it was important for Congress not to make spending and tax policies that would hurt the economic recovery. And he urged lawmakers to get past the political divisions to solve the long-term debt problems.
"I recognize that politics is a tough game and that there are a lot of disagreements in Congress," he said. "But obviously [there's] more that can be done to show cooperation and collaboration on this very important issue."