Federal Reserve Chairman Ben Bernanke, who has gained both allies and enemies over his handling of the financial crisis, told senators considering his renomination Thursday that he was committed to an "exit strategy" on bailouts and to stimulus programs that would provide a smooth return to normalcy.
Appearing before the Senate Banking Committee, the nation's head banker also said that if given a second term, he would work to "fundamentally reform" the system to prevent any repeat of the economic crisis — the worst since the 1930s.
"Determining the appropriate time and pace for the withdrawal of stimulus will require careful analysis and judgment," Bernanke said. "My colleagues on the Federal Open Market Committee and I are committed to implementing our exit strategy in a manner that both supports job creation and fosters continued price stability."
He added that it would be a "tragedy if, after all the hardships that Americans have endured during the past two years, our nation failed to take the steps necessary to prevent a recurrence of a crisis of the magnitude we have recently confronted."
Bernanke, whose term expires Jan. 31, has been roundly criticized for the Federal Reserve's lax oversight and for failing to pick up on early signs of the housing and banking crises. Others have praised his aggressive actions that are widely credited with preventing the recession from becoming a full-blown depression.
But the government's bailout of Wall Street, even as ordinary Americans suffered, has become a point of deep contention. The multibillion-dollar bailouts of American International Group and other financial firms that continued to hand out huge bonuses sparked public furor and fueled worries that the Fed's moves would encourage "moral hazard," or risky behavior without fear of consequences. Even so, Bernanke's confirmation appears likely.
The Fed chief defended the financial industry bailout. He called Thursday's announcement by Bank of America that it would repay the government in full for the $45 billion it received under the Troubled Asset Relief Program good news.
In recovering TARP funds from other financial institutions, Bernanke said he believed that "overall we're going to end up with pretty close to break-even."
The committee chairman, Sen. Christopher Dodd (D-CT), praised the former Princeton University economics professor for having done "a very good job in preventing catastrophe."
The Fed's efforts "played, in my view, a very significant role in arresting the financial crisis," said Dodd, who predicted Bernanke would win another term.
But Dodd has pushed to limit the Fed's power, while the Fed chief has pushed for the central bank to retain strong control over monetary policy. Bernanke argued that the Fed must remain effective and independent to make sometimes politically unpopular decisions that are nonetheless good for the economy. On Wednesday, a House committee passed a provision that would subject the Fed to congressional audits. Bernanke opposes such a move.
The panel's top Republican, Sen. Richard Shelby of Alabama, said part of the problem with the Federal Reserve was that prior to the economic crisis, it "kept interest rates, I believe, far too low for too long, encouraging a housing bubble and excessive risk-taking."
In short, the Fed had done "a horrible job as a regulator," Shelby said.
"We didn't do a perfect job by any means," Bernanke acknowledged. But he added: "We didn't do the worst job" either.
In later questioning, Bernanke said he "did not anticipate a crisis of this magnitude."
"That is a mistake we won't make again," he added.
Sen. Bernie Sanders (I-VT), who is not a member of the Senate Banking Committee, said Wednesday that he planned to put a hold on the nomination when it reaches the Senate floor, arguing the Fed chief had done little for average Americans while going too easy on big banks. That move could force Senate leaders to round up 60 votes just to consider the nomination, which could slow the confirmation process.
Sanders' view was echoed by Sen. Jim Bunning (R-KY), who told Bernanke bluntly that "your time as Fed chairman has been a failure."
Pressed on whether the Fed would be in a position to rein in inflation as the federal deficit balloons, Bernanke reiterated that "we are thinking a great deal about our exit strategy." He said the current fiscal policy needed a similar exit strategy.
Entitlement programs also needed to be brought under control, Bernanke said, noting: "At the rate we're going, in 10 or 15 years, the budget will be nothing but entitlements."
Bernanke's testimony came on the same day that a private measure of U.S. service sector activity showed an unexpected drop for November and retailers posted a surprise drop in sales, as constrained consumer spending and rising unemployment hinder a broad recovery.
Meanwhile, new jobless claims dropped for a fifth straight week and third-quarter productivity gains suggest companies are finding ways to reap profits with fewer workers — another ominous sign for the nearly 16 million unemployed Americans.
Bernanke said it is too early to decide whether additional government aid is needed to bolster the recovery and spur job creation. The White House was holding a summit Thursday to explore new ideas to get Americans back to work.
From NPR staff and wire reports
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