Republicans grill Bernanke about inflation

WASHINGTON - Members of Congress sharply questioned Federal Reserve Chairman Ben S. Bernanke Wednesday over whether the Fed's policies risk higher inflation.

House Budget Committee Chairman Paul Ryan (R., Wis.) said he was concerned the Fed would be unable to detect inflation until "the cow is out of the barn" and inflation is already spreading dangerously through the economy.

Bernanke acknowledged that inflation was surging in emerging economies. But he downplayed the risks to the U.S. economy, even as lawmakers expressed concerns about rising gasoline and food prices.

Inflation in the United States remains "quite low," Bernanke said. He blamed higher prices on strong demand from fast-growing countries such as China - not the Fed's policies to stimulate the economy, including buying $600 billion worth of Treasury debt through June 30.

Bernanke's remarks suggest the Fed will stick with the bond-buying plan. The program is aimed at invigorating the economy by lowering rates on loans and boosting prices on stocks.

It was Bernanke's first appearance before the House since Republicans took control last month. He faced tough questions from them, though he is a Republican.

Ryan worries the Fed's stimulus policies, including the debt purchases, could trigger inflation or speculative buying of stocks or other assets.

"Many of us fear monetary policy is on a difficult track," Ryan said.

Rep. Todd Rokita (R., Ind.) seemed skeptical of the Fed's ability to fend off inflation before it gets out of hand. In the Fed's history, when did the Fed "get it right?" Rokita asked.

Bernanke said he was confident the Fed had the political will to boost interest rates and snuff out inflationary forces.

He acknowledged that rising gas prices were a threat to the economy. Prices have been around $3 a gallon nationally. Prices above $4 a gallon would "take a significant amount of disposable income away from people," he said.

Still, Bernanke defended the bond-purchase program. He said it was needed to ease unemployment that remains at 9 percent, and he credited the Fed's stimulus policies with creating or saving 3 million jobs over the last several years.

He cautioned that it would take four or five years for hiring to pick up and push the unemployment rate to a more normal level - around 5 percent or 6 percent.

He said the economic recovery would not be assured until companies stepped up hiring consistently.

Ryan and Bernanke agreed that Congress and the White House need a plan to reduce the government's $1 trillion-plus deficits.

Ryan favors budget cuts to get the deficits under control.

Bernanke endorsed no specific policies on deficit-cutting. He said lawmakers should hold off on spending cuts or tax increases until the economy is in better shape.

Bernanke again warned Republicans that they should not play political games with the Treasury Department's request to raise the government's borrowing authority.

The Treasury has asked to raise the $14.3 trillion debt ceiling. House Republicans have vowed to make deep spending cuts a precondition.