WASHINGTON — The Federal Reserve chairman, Ben S. Bernanke, faced harsh questions Wednesday about the central bank’s efforts to stimulate the economy, in his first hearing before the new Republican majority in the House. “My concern is that the costs of the Fed’s current monetary policy — the money creation and massive balance sheet expansion — will come to outweigh the perceived short-term benefits,” Representative Paul D. Ryan of Wisconsin, the new chairman of the House Budget Committee, said in his opening remarks.
Mr. Ryan expressed alarm about “a sharp rise in a variety of key global commodity and basic material prices,” as well as the recent rise in yields in longer-term Treasury securities. While acknowledging that consumers in the United States were not yet experiencing higher prices, Mr. Ryan warned that “the inflation dynamic can be quick to materialize and painful to eradicate once it takes hold.”
And he expressed concern that central bank’s plan to buy $600 billion in Treasury securities in order to spur the recovery was devaluing the dollar. “There is nothing more insidious that a country can do to its citizens than debase its currency,” he said. Mr. Bernanke’s statement was nearly identical to a speech he gave last week at the National Press Club, in which he played down the significance of rising food prices and defended the Fed’s plan to buy Treasury securities.
During the hearing, Mr. Bernanke cited a recent study by Fed researchers, which found that the new round of quantitative easing — as the bond-buying strategy is called — could be responsible for creating as many as 700,000 jobs.
However, the new alarm over inflation in China and other fast-growing emerging economies — and warnings by the International Monetary Fund that some of the economies are reaching the limits of their capacity — suggested that Mr. Bernanke might also face tough questions on price levels.
“On the inflation front, we have recently seen increases in some highly visible prices, notably for gasoline,” Mr. Bernanke said. “Indeed, prices of many industrial and agricultural commodities have risen lately, largely as a result of the very strong demand from fast-growing emerging market economies, coupled, in some cases, with constraints on supply.”
Mr. Bernanke added: “Nonetheless, overall inflation is still quite low and longer-term inflation expectations have remained stable.”
Mr. Ryan said he feared the Fed would only notice inflation after it had started to rise, and he held up the Wednesday edition of The Wall Street Journal, citing a headline that stated: “Inflation Worries Spread.” Mr. Bernanke also played down those concerns. “Inflation is taking place in emerging markets because that’s where the growth is, that’s where the demand is and that’s where, in some cases, the economy is overheating,” he told Mr. Ryan.
In 2010, a closely watched measure of inflation — the price index for personal consumption expenditures — rose 1.2 percent, down from 2.4 percent in 2009. “Core” inflation — which unlike headline” inflation does not include volatile food and energy prices — was 0.7 percent in 2010, compared with around 2.5 percent in 2007, Mr. Bernanke noted. And wage growth has slowed as well, with average hourly earnings increasing only 1.7 percent last year.
“These downward trends in wage and price inflation are not surprising, given the substantial slack in the economy,” Mr. Bernanke said. Representative Chris Van Hollen of Maryland, the top Democrat on the committee, defended Mr. Bernanke and the Fed.
He said it was “astonishing” that some Republicans were seeking to strip the Fed of its legal mandate to promote both price stability and maximum employment, and to instead focus solely on inflation.
Mr. Ryan expressed alarm about “a sharp rise in a variety of key global commodity and basic material prices,” as well as the recent rise in yields in longer-term Treasury securities. While acknowledging that consumers in the United States were not yet experiencing higher prices, Mr. Ryan warned that “the inflation dynamic can be quick to materialize and painful to eradicate once it takes hold.”
And he expressed concern that central bank’s plan to buy $600 billion in Treasury securities in order to spur the recovery was devaluing the dollar. “There is nothing more insidious that a country can do to its citizens than debase its currency,” he said. Mr. Bernanke’s statement was nearly identical to a speech he gave last week at the National Press Club, in which he played down the significance of rising food prices and defended the Fed’s plan to buy Treasury securities.
During the hearing, Mr. Bernanke cited a recent study by Fed researchers, which found that the new round of quantitative easing — as the bond-buying strategy is called — could be responsible for creating as many as 700,000 jobs.
However, the new alarm over inflation in China and other fast-growing emerging economies — and warnings by the International Monetary Fund that some of the economies are reaching the limits of their capacity — suggested that Mr. Bernanke might also face tough questions on price levels.
“On the inflation front, we have recently seen increases in some highly visible prices, notably for gasoline,” Mr. Bernanke said. “Indeed, prices of many industrial and agricultural commodities have risen lately, largely as a result of the very strong demand from fast-growing emerging market economies, coupled, in some cases, with constraints on supply.”
Mr. Bernanke added: “Nonetheless, overall inflation is still quite low and longer-term inflation expectations have remained stable.”
Mr. Ryan said he feared the Fed would only notice inflation after it had started to rise, and he held up the Wednesday edition of The Wall Street Journal, citing a headline that stated: “Inflation Worries Spread.” Mr. Bernanke also played down those concerns. “Inflation is taking place in emerging markets because that’s where the growth is, that’s where the demand is and that’s where, in some cases, the economy is overheating,” he told Mr. Ryan.
In 2010, a closely watched measure of inflation — the price index for personal consumption expenditures — rose 1.2 percent, down from 2.4 percent in 2009. “Core” inflation — which unlike headline” inflation does not include volatile food and energy prices — was 0.7 percent in 2010, compared with around 2.5 percent in 2007, Mr. Bernanke noted. And wage growth has slowed as well, with average hourly earnings increasing only 1.7 percent last year.
“These downward trends in wage and price inflation are not surprising, given the substantial slack in the economy,” Mr. Bernanke said. Representative Chris Van Hollen of Maryland, the top Democrat on the committee, defended Mr. Bernanke and the Fed.
He said it was “astonishing” that some Republicans were seeking to strip the Fed of its legal mandate to promote both price stability and maximum employment, and to instead focus solely on inflation.
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