Federal Reserve Chairman Ben Bernanke is set to testify on the state of the U.S. economy Wednesday morning when he appears before the House Budget Committee.
With no economic data on the calendar Wednesday, Bernanke’s comments are likely to dominate investors’ attention on Wall Street. He is expected to make comments on the state of the economy, and also on monetary and fiscal policy.
Bernanke is due to begin his testimony at 10 a.m. ET.
Last week, in prepared remarks to the National Press Club in Washington, D.C., Bernanke said the recovery still needs help from the Fed despite signs of improvement.
The economy is strengthening, and will likely grow at a faster pace this year as more confident consumers and companies spend more, but the Fed chairman also warned that the growth won't be strong enough to quickly drive down high unemployment, and it could take several years before it returns to more normal levels.
Wednesday’s hearing will be Bernanke's first appearance before the House since Republicans took control last month is likely to be a tough one. And much of the grilling will probably come from members of his own party.
Bernanke is a Republican who served as President George W. Bush's chief economist. Bush chose him to run the Fed in 2006.
President Barack Obama ran into initial resistance in his effort to get Bernanke confirmed for a second term as chairman in late 2009. Republicans led the opposition, upset over the Fed's role in bailing out Wall Street firms during the financial crisis. In January 2010, the Senate confirmed Bernanke for a second term, though by the narrowest margin for any Fed chairman.
Many economists, academics and supporters in Congress credit Bernanke with helping prevent the Great Recession from turning into a second Great Depression.
But that's in the past. Bernanke's efforts to help invigorate the economy through a program to buy $600 billion U.S. in Treasury bonds have incited criticism.
Much of it has come from Republicans, including House Speaker John Boehner of Ohio and Senate Minority Leader Mitch McConnell of Kentucky. They've argued that the program could ignite inflation or cause speculative buying that might inflate bubbles in assets like stocks.
Bernanke is likely to face grilling from lawmakers about the costs and benefits of the program when he testifies Wednesday. The committee's chairman, Republican Paul Ryan, has raised concerns about the Fed's efforts to stimulate the economy, including buying government debt. He, too, says he fears the Fed's actions could spur inflation.
Lawmakers from both parties will likely aim to get Bernanke to back their solutions for reducing the government's $1-trillion-plus U.S. budget deficits. Ryan has promoted budget cuts as the way to reduce deficits.
As in the past, Bernanke probably won't endorse a specific legislative approach for cutting the deficits. But he'll likely again warn Congress and the White House that failing to forge a plan to reduce deficits over the long term could hurt the economy later.
Persistent budget deficits will prompt investors to demand higher yields on government debt, causing interest rates to soar, Bernanke has said. Higher borrowing costs would crimp spending by consumers and businesses, slowing economic activity, he's warned.
Last week, Bernanke stepped into the political debate over the nation's debt limit. The Fed chief warned congressional Republicans not to "play around with" the Treasury Department's request to boost the government's borrowing authority beyond the current $14.3-trillion U.S. statutory cap. House Republicans have vowed to make deep spending cuts a precondition for voting to raise the debt ceiling.
The department has asked Congress to let it borrow more so it can continue to pay its bills. In the unlikely event that Congress denied the request, the U.S. government would be at risk of defaulting on its debt.
Bernanke, in remarks last week to the National Press Club, said the implications would be catastrophic. He urged Congress not to use the debt limit as a "bargaining chip" in broader discussions about reducing the government's deficits.
At the same time Bernanke is testifying, Republican Ron Paul, will hold a hearing on whether the Fed's bond-buying program and record-low interest rates can really help create jobs.
Paul, a Bernanke critic who favors abolishing the Fed, says the "nation's employment picture remains bleak" despite the Fed's actions.
The unemployment rate has sunk in the past two months — from 9.8% to 9%. But it remains very high by historical standards. And job creation is still weak. Bernanke has said it will take "several years" for unemployment to drop to normal levels.
