Bernanke warns lawmakers not to strip Fed of powers

BEN BERNANKE has warned lawmakers not to divest the US Federal Reserve of the authority and independence it needs to promote growth and price stability.

“As we move forward, we must take care that the Federal Reserve remains effective and independent,” Mr Bernanke told the Senate banking committee yesterday during his confirmation hearing for a second term as the US central bank’s chairman.

He urged Congress not to take away the Fed’s role in bank supervision or subject it to more intrusive government auditing.

The Fed chief said near-zero interest rates were not fuelling asset price bubbles in the US and that it was not the Fed’s job to prevent bubbles abroad.

“US monetary policy is intended to address both financial and economic issues in the US,” he said.

“Countries that are concerned about that have their own tools to address bubbles in their own countries”, such as exchange rate appreciation or changes in their own fiscal and monetary policies.

However, Mr Bernanke said the Fed would monitor asset prices and that, in the absence of proposed new systemic risk powers to combat bubbles, “monetary policy has to pay some attention” to asset prices. “We are looking at it.”

The Fed chairman also said the Fed had not made a final decision to end asset purchases as scheduled in March, saying this was a monetary policy judgment and the committee would decide “whether or not to do more” based on the economic outlook.

Amid tough but generally respectful questioning, most senators appeared ready to support Mr Bernanke’s renomination but many voiced deep concerns about the Fed as an institution.

Moreover, they challenged the chairman’s views as to the roles it should play in the future.

Chris Dodd, the Democratic chairman of the Senate banking committee, praised Mr Bernanke as “the right leader for this moment in our nation’s economic history”.

But Mr Dodd said he wanted to pare back the Fed’s responsibilities to focus it more narrowly on monetary policy.

Richard Shelby, the senior Republican on the committee, withheld his support, saying: “For many years I held the Federal Reserve in very high regard . . . I fear now, however, that our trust and confidence was misplaced.”