Bernanke prods Congress, defends policy path

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He underlined the Fed’s commitment to providing stimulus to the economy for as long as it needs it, but said monetary policy can only do so much if Congress continues to allow the cuts from sequestration while failing to address the deepening deficit.

"My suggestion to Congress is to consider possibilities that involve somewhat less restraint in the near term and more action to make sure we are on a sustainable path in the long run," he said.

House members clearly recognized that Wednesday’s hearing could be their final session with Bernanke. President Obama has signaled that he won’t appoint Bernanke to a third term, and some of the Fed chief’s actions and statements indicate he’s eyeing the exits.

Several of the lawmakers took a minute on Wednesday to recognize Bernanke’s role in helping to steer the country through the financial crisis and the recession that it caused.

Some of those acknowledgments came with heavy caveats from lawmakers who have been wary of the Fed's foray into unprecedented policy moves.

"I suspect that history will record that at a very perilous point at our nation's economic history, that you acted boldly and decisively and creatively — very creatively, I might add," said Chairman Jeb Hensarling (R-Texas).

Rep. Emanuel Cleaver (D-Mo.) said many of the comments made the hearing sound like a "eulogy" for the Fed chief, and several Democrats said they still held out hope that Bernanke would stay on the job beyond the close of his second term at the beginning of 2014.

For his part, Bernanke launched a spirited defense of the Fed's policies under his watch, which have come under closer scrutiny after he suggested central bank officials were plotting how to exit from the massive stimulus policies the Fed has pursued since the economy turned south.

Following the most recent Fed meeting, Bernanke told reporters that, if the economy proceeds as expected, the Fed could begin shrinking the size of its monthly bond purchases, and ultimately halt them sometime in the middle of 2014. The Fed, in its latest round of "quantitative easing," is buying $85 billion worth of bonds a month in a further bid to lower borrowing costs.

But Bernanke's explanation roiled markets, leading to a spike in mortgage rates and the worst days for the stock market of the year.

Since then, Fed officials have sought to downplay any potential exit, emphasizing that they have no plans to step off the gas until they see strong economic data that justifies it.

Bernanke echoed that position Wednesday, going so far as to say the Fed could actually ramp up its purchases if the economy slowed enough, and that its future policy plans "are by no means on a preset course."

As chairman, Bernanke has pushed the Fed to offer far more information to the public than ever before. His explanation of future tapering of bond purchases came at a press conference — a new ritual that he started and could become part of his legacy if the next Fed chairman follows suit.

Bernanke defended his push for more open operations, warning that keeping Fed thinking under wraps could push markets to misinterpret the bank’s signals.

"I continue to believe that we should do everything we can to apprise markets and the public of our plans," he said. "The markets are beginning to understand our message, and the volatility has obviously moderated."