Lawmakers test patience of Bernanke

Federal Reserve Chairman Ben Bernanke’s patience appeared to wear thin at times during a Tuesday hearing in which he warned GOP lawmakers the economic recovery is “close to faltering.”

Bernanke rejected an argument from Rep. Mick Mulvaney (R-S.C.) that the Fed was making it tougher to lower government spending by keeping interest rates low. 

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“I don’t think that’s a valid point,” Bernanke said. “We keep interest rates down somewhat. I don’t think that eliminates the responsibility of Congress to take its own action.”

Bernanke also described Sen. Mike Lee’s (R-Utah) claim the Fed operated under a “general veil of secrecy” as an “urban legend.”

“We are very thoroughly audited at this point,” he said. “Nobody’s found any impropriety whatsoever ... that’s really just an urban legend.” 

Bernanke said the nation’s fiscal situation is “clearly not on a sustainable path,” and told lawmakers they cannot “safely or responsibly” delay making “difficult and fundamental fiscal choices.”

Several lawmakers, for their part, bristled at the pressure from Bernanke and argued the Fed was not making their jobs easier.

The testiness came on a day of continued unease about the economy. Markets gyrated throughout the day, with most indexes suffering losses while Bernanke spoke to the Joint Economic Committee. The Dow Jones closed up for the day. 

Washington is bracing for a new report Friday on the nation’s unemployment rate, with both parties grasping for good news as the campaign for Congress and the White House intensifies by the day. 

Bernanke painted a bleak picture, saying recent data point to “the likelihood of more sluggish job growth in the period ahead.”

“The recovery is close to faltering. We need to make sure the recovery continues and doesn’t drop back,” he said.

He made clear that the Fed cannot salvage the economy on its own and that monetary policy is not a “panacea” for the nation’s economic struggles. Instead, Congress needs to step up to the plate.

“Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector,” he said.

Nonetheless, he maintained that the Fed is prepared to take even more steps “as appropriate” to boost the economy.

Tension between Bernanke and lawmakers on Capitol Hill is nothing new. 

The central bank has been under consistent pressure from lawmakers since it began digging deep into its playbook in several attempts to boost the flagging economy.

After it had lowered interest rates as far as it could after the financial crisis, the Fed began dabbling in more unorthodox policies.

This summer, the Fed took the unusual step of announcing it would be keeping interest rates near zero for at least the next two years.

And in a further bid to lower long-term interest rates, it announced in September that it would be overloading its portfolio with longer-term securities, buying up $400 billion of long-term bonds while selling off the same amount in short-term securities.

The gambit, dubbed “Operation Twist,” came days after GOP leaders made a direct plea to the Fed, arguing in a letter to Bernanke that the Fed should resist further efforts to boost the economy, as those moves were doing more harm than good.

Republicans have argued that the Fed’s policies are having little impact and are sowing the seeds of future inflation. Democrats have also begun second-guessing the Fed, arguing the central bank should be taking more dramatic steps to boost the economy.

For his part, Bernanke downplayed the reach of the move, which also served to underline the need for Congress to act.

“We think this is a meaningful, but not an enormous, support for the economy,” he said.

Committee Chairman Sen. Bob Casey Jr. (D-Pa.) chided Republicans for pressuring the Fed, and defended the central bank’s moves as “needed to strengthen the economy.”

But the vice chairman of the panel, Rep. Kevin Brady (R-Texas), said the Fed needed to refine its focus, and that he would be introducing legislation to reduce the Fed’s mandate so it focused only on inflation, and not on maximizing employment as well.

Several Republican lawmakers similarly probed Bernanke on a single mandate, as he defended the Fed’s dual mandate as “workable.” However, he noted that Congress had the right to change it if it saw fit.

“We will do whatever you assign us to do,” he said.

Brady also called on the Fed to clarify exactly how it functions as a lender of last resort, noting the unprecedented steps the central bank took in the throes of the financial crisis.

While he was critical of the Fed’s recent moves, Brady said he was not challenging the Fed’s political independence.

“For our economy’s sake, the Federal Reserve must remain independent and free from any undue political pressure in implementing monetary policy,” he said.