WASHINGTON (AP) — Chairman Ben Bernanke told lawmakers Wednesday that the Federal Reserve's efforts to bolster growth have helped lift the U.S. economy out of the Great Recession. But he acknowledged that the economy remains weak and the Fed can only do so much.
"I don't think it is the case that there has been no progress. The recovery has been slower than we like but clearly we have made progress," Bernanke told the House Financial Services Committee.
Bernanke was on the Hill to deliver his twice-a-year report to Congress on the state of the economy. But he spent part of the hearing defending the Fed's previous two rounds of large-scale bond purchases against Republican criticism.
The economy has weakened since the start of the year, and Bernanke said the Fed is prepared to take further action if unemployment stays high. He didn't specify what steps the Fed might take or whether any action was imminent.
His comments were similar to those he made Tuesday to the Senate Banking Committee on Tuesday.
Many economists interpreted the remarks to mean the Fed will likely launch a third round of bond purchases, perhaps in the fall. That's because few expect the unemployment rate, which was 8.2 percent last month, to fall much further by then.
The bond purchases seek to lower long-term interest rates and encourage more borrowing and spending.
Bernanke noted that the economy, after growing at a 2.5 percent annual rate in the second half of 2011, slowed to roughly 2 percent from January through March. And it likely weakened further in the April-June period.
Manufacturing has slowed. Consumers are spending less. And job growth has slumped to an average of 75,000 a month in the April-June quarter from 226,000 a month from January through March.
Republicans on the panel questioned the Fed's use of large-scale asset purchases to lower long-term interest rates. They say the bond purchases have increased the risk of inflation without providing much help to the slumping economy.
"We have anemic growth, probably half of what it should be by historic standards," said Rep. Jeb Hensarling, R-Texas. Hensarling questioned what another round of bond purchases would do.
Bernanke said the first effort in the middle of 2009 helped lift the economy out of the recession, which ended in June 2009.
The second round, launched in Nov. 2010, kept the economy from suffering a bout of deflation, he said. Deflation is a prolonged period of falling prices which the United States hasn't seen since the Great Depression.
"I think the previous efforts did have productive effects," he said.
Bernanke also repeated his warning to Congress about the looming budget crisis.
Unless lawmakers strike a deal, tax increases and deep spending cuts will take effect on Jan. 1. That could push the country back into a recession and cost jobs, he said.
Congress needs to resolve the impasse well before the year ends, Bernanke said.
"Doing so would help reduce uncertainty and boost household and business confidence," he said.
Congress should also come up with a plan to deal with the rising deficits, but the plan should go into effect on a gradual basis over the next decade, he said.
"It just shouldn't happen all in one day," Bernanke told the House panel.
During the hearing, Bernanke voiced objections to a bill being sponsored by Rep. Ron Paul, R-Texas. It would expand the power of Congress to audit the Fed's operations. The House is expected to vote on Paul's legislation next week.
The bill threatens the Fed's independence because it would allow Congress to request documents supporting changes in interest rates, Bernanke said. That could make some Fed policymakers hesitant to support changes, he noted.
"That is very concerning," Bernanke said.
Paul rejected Bernanke's argument and said the real issue was the central bank still trying to conduct its operations in secret.
"When the Fed talks about independence, what they are really talking about is secrecy," Paul said. "Where did we get into a situation where Congress has nothing to say about trillions and trillions of dollars."