- Associated Press - Wednesday, February 9, 2011

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

Rep. Paul D. Ryan, Wisconsin Republican, who is House Budget Committee chairman, 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.

Mr. 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,” Mr. 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.

Mr. 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.

Mr. 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,” Mr. Ryan said.

Rep. Todd Rokita, Indiana Republican, 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?” Mr. Rokita asked.

Mr. 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.

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

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

Mr. Bernanke is making his first appearance before the House since Republicans took control last month. He faced some tough questions from them, despite being a member of the party.

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

Mr. 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.

Mr. 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,” Mr. Bernanke said.

At the same time Mr. Bernanke was testifying, Rep. Ron Paul, Texas Republican, held a hearing on whether the Fed’s bond-buying program and record-low interest rates really can help create jobs. Mr. 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 D. Lucas, Oklahoma Republican. “I am not sure their vision in the future will be any better than in the past.”

AP writer Martin Crutsinger contributed to this report.


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