Bernanke: Senators Give Fed Chief a Rough Ride Over Economy
Federal Reserve chairman faces tough questioning over administration's handling of recent financial flare-ups
Ben Bernanke, the Federal Reserve chairman, warned of "numerous difficulties" facing the US economy during a feisty congressional hearing at which senators expressed alarm about writing blank checks to bail out mortgage financiers.
In comments that failed to cheer Wall Street yesterday, the central bank boss rattled off a list of factors behind "sluggish" growth, including falling house prices, a softening labor market, credit losses at financial institutions and flat capital investment by businesses.
"The economy has continued to expand but at a subdued pace," said Bernanke, adding that soaring prices for fuel and other commodities meant inflation "seems likely to move temporarily higher in the near term".
Although Bernanke avoided using the word "recession", his remarks went down poorly on the stockmarket, where the Dow Jones industrial average spent the morning in negative territory, slipping 5 points to 11,050 by lunchtime. Appearing before the senate banking committee, Bernanke faced a tough examination over the administration's handling of recent financial flare-ups alongside the treasury secretary, Henry Paulson, and the chairman of the securities and exchange commission, Christopher Cox.
A Democratic senator, Robert Menendez, pointed out that regulators had been forced to cobble together hastily arranged rescue packages both for Bear Stearns and for the two troubled mortgage finance firms Fannie Mae and Freddie Mac. "We seem to be constantly behind the curve instead of ahead, reactive instead of proactive," said Menendez.
Others asked why the treasury was asking for authority to extend an unlimited amount of financing to Fannie Mae and Freddie Mac, rather than putting a cap on the potential cost to taxpayers. "The treasury secretary is asking for a blank check to buy as much Fannie [Mae] and Freddie [Mac] debt as he wants for this unprecedented intervention in our free markets," said Jim Bunning, a Republican senator.
The bailout, a response to an evaporation of confidence which sent shares in Fannie Mae and Freddie Mac into free fall last week, was defended by Paulson as beneficial to anybody owning a home or seeking finance to buy one.
In comments that failed to cheer Wall Street yesterday, the central bank boss rattled off a list of factors behind "sluggish" growth, including falling house prices, a softening labor market, credit losses at financial institutions and flat capital investment by businesses.
"The economy has continued to expand but at a subdued pace," said Bernanke, adding that soaring prices for fuel and other commodities meant inflation "seems likely to move temporarily higher in the near term".
Although Bernanke avoided using the word "recession", his remarks went down poorly on the stockmarket, where the Dow Jones industrial average spent the morning in negative territory, slipping 5 points to 11,050 by lunchtime. Appearing before the senate banking committee, Bernanke faced a tough examination over the administration's handling of recent financial flare-ups alongside the treasury secretary, Henry Paulson, and the chairman of the securities and exchange commission, Christopher Cox.
A Democratic senator, Robert Menendez, pointed out that regulators had been forced to cobble together hastily arranged rescue packages both for Bear Stearns and for the two troubled mortgage finance firms Fannie Mae and Freddie Mac. "We seem to be constantly behind the curve instead of ahead, reactive instead of proactive," said Menendez.
Others asked why the treasury was asking for authority to extend an unlimited amount of financing to Fannie Mae and Freddie Mac, rather than putting a cap on the potential cost to taxpayers. "The treasury secretary is asking for a blank check to buy as much Fannie [Mae] and Freddie [Mac] debt as he wants for this unprecedented intervention in our free markets," said Jim Bunning, a Republican senator.
The bailout, a response to an evaporation of confidence which sent shares in Fannie Mae and Freddie Mac into free fall last week, was defended by Paulson as beneficial to anybody owning a home or seeking finance to buy one.
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