Closed As it happened: Bernanke on the Hill

Ben Bernanke makes what is likely to be his final appearance before Congress this week. The Federal Reserve chief repeats the central bank’s intention to slow its $85bn a month in asset purchases later this year if the economy stays strong, but says that would not mean a weakening of Fed support for the US economy.

By James Politi in Washington. All times are BST

Jeb Hensarling, the Texas representative who chairs the House financial services committee, opens up the hearing by chastising Ben Bernanke for his “offhanded” comments that triggered such market volatility over the past few weeks. Hensarling, a conservative Republican and critic of quantitative easing, said a “ruthless” examination of the Fed’s exit strategy was required.

Maxine Waters, the top Democrat on the panel, pleads for Bernanke not to scale back monetary stimulus until it is absolutely clear that the economy has recovered strongly, with lower unemployment.

Bernanke’s microphone is not working, the latest in a series of audio mishaps at the start of the hearing.

The hearing is back on, and Bernanke starts delivering his opening statement. As Robin Harding writes on his testimony did not change policy but was seen as relatively dovish and could help reassure markets that the Fed is not rushing to taper QE or raise rates

Bernanke is now reiterating the timeline for the tapering of asset purchases by the end of this year, and ending QE3 altogether by the middle of 2014, as long as unemployment is in the vicinity of 7 per cent. But he notes that “this is by no means a preset course” and would depend on how the economy evolves.

Bernanke takes some time to address the final rule adopted by the Fed last week to implement Basel III capital requirements for large banks.

Questions begin. Hensarling says he has an “obvious” one – about Bernanke’s communications on tapering in May and June and how it triggered market jitters. Can you comment on your guidance?

Bernanke says it is a difficult environment – he says not speaking about these issues would have risked a dislocation, and a build-up in risky positions. He says it has been “very important that we communicate as best we can”. He says “markets have begun to understand our message” since volatility has eased.

Hensarling turns to the GSEs – the housing giants Fannie Mae and Freddie Mac taken over by the government during the crisis. He asks Bernanke if he still supports “privatisation” but Bernanke dodges by saying that he still believes there are big problems with the GSEs and their government guarantee.

Maxine Waters takes the microphone and the top Democrat on the panel asks whether the US should have less tight fiscal policy in the near term, as the IMF has said. Bernanke says near term policies are cutting 1.5 percentage points from growth in 2013. But long-run fiscal issues have not been tackled.

Here’s my analysis piece on the US deficit situation published in today’s FT. Bernanke seems to agree that less fiscal consolidation in the short term would be a good idea, but long-term reforms also need to be addressed by Congress.

Bill Huizenga, a Republican, asks Bernanke point blank – on behalf of a friend – if he should refinance now. The Fed chairman says he is “not a qualified financial adviser”.

Huizenga makes a classic comment about making sure Fed policies benefit Main Street, not Wall Street – then he has a question about Too Big To Fail in Dodd-Frank and one about an economist survey giving the Fed a “D minus” grade for its communications. Bernanke says he believes they have done a “reasonable job”.

Lacy Clay, a Missouri Democrat, asks Bernanke about sequestration then asks if he thinks Fed policy has helped reboot the housing market. Bernanke takes credit. Is he worried that rising mortgage rates could undermine that? Bernanke says the Fed is “monitoring that”.

Clay asks Fed about unemployment. “We’re still far above long-run normal unemployment rate,” says Bernanke.

Former House Financial Services chair Spencer Bachus of Alabama asks whether unemployment is cyclical or structural. Bernanke says: “So far we don’t see any evidence that structural component has increased much” – an encouraging assessment from the Fed chairman

Ed Perlmutter, Colorado Democrat, congratulates Bernanke for being a “steady hand”. He then asks about the impact of sequestration on the job market. Bernanke responds that the impact is “very substantial”.

Gary Miller, a California Republican, returns to housing finance. Bernanke says the key question is what role the government should play. “I don’t know the answer to that but if the government does play a role it should be compensated,” he says.

Stephen Lynch, a Massachusetts Democrat, stays on housing finance, clearly a big topic on the committee because they are in the process of considering legislation to reform Fannie Mae and Freddie Mac. Lynch, clearly a fan of strong government support, suggests the 30-year fixed mortgage would have never happened without it.

Monetary policy does seem to have taken a back seat as the hearing drags on – as it often does.

Al Green, a Texas Democrat, presses Bernanke on “certainty, uncertainty and confidence” – and the Fed chairman responds that there is no “magic formula” to boost confidence but if there was a sense that Washington was “working together” it might help.

“If the economy can survive Congress, I’m confident that it’ll thrive eventually”, says Green, and Bernanke chuckles.

Robert Hurt, a Republican from a rural Virginia district, is asking about community banks – concerned that new regulations including Basel III are too onerous. Hurt would have liked small institutions to be exempted. Bernanke says it is important for them to be “protected”.

Bernanke is asked by Emanuel Cleaver, a Missouri Democrat, what the consequences would be of a premature end to Fed stimulus. Mr Bernanke simply says they are going to be “responding to data”.

Cleaver presses on Too Big To Fail. Would the US have to step in again to bail out major corporations? Bernanke says there is “more work to be done” before TBTF can be declared a thing of the past, and there are more tools now to prevent bailouts.

Steve Stivers, Ohio Republican, says he has more questions on Basel III related to community banks. Why weren’t they exempted ? “It’s important that they be well capitalised,” says Bernanke, noting there were financial crisis triggered by smaller firms.

Stivers said he had questions about QE but didn’t quite get to them. Next up is Gary Peters of Michigan, a Democrat, who is asking about Japan’s yen devaluation and its entry into the Trans-Pacific Partnership trade talks.

Bernanke says that Japan is not manipulating its currency, just using strong monetary policy to break its cycle of deflation. Says this is fundamentally different from China. The benefit is a stronger Japanese economy and Asian market.

As a backdrop to that exchange between Bernanke and Peters, see how US auto companies like Ford are irate at Japan and not happy the US has let them into trans-Pacific trade talks.

Stephen Lee Fincher, a Tennessee Republican, launches a classic conservative broadside on the addiction to government money created by the Fed, and asks if the economy can withstand being unhooked. Bernanke fends him off.

Marlin Stutzman, Indiana Republican, asks about currency wars. Bernanke repeats his comments about the distinctions between the exchange rate effects triggered by looser monetary policy and outright manipulation.

Patrick Murphy of Florida asks about QE tapering. Bernanke says they will be watching and if mortgage rate increases are threatening progress in housing there may have to be more action in the monetary sphere to address it.

Another question about the markets being addicted to easy money – and whether the Fed will ultimately be able to unwind the asset purchases it has pursued since the crisis. “Profits are ahead of jobs,” Bernanke says, defending QE.

Bernanke says that he hasn’t seen any economic data that points strongly to mortgage rate increases hurting the housing market, but they are watching it closely. “It’s very early,” he says.

Bernanke says “we’ve had some strong data in some areas” and today’s housing data was “a bit weaker”. Economic trajectory is pretty much as expected, leading to taper start by the end of the year, but again, he says it will depend on the economic outlook.

Joyce Beatty, an Ohio Democrat, is back to the housing market. Bernanke says mortgage credit remains very tight for borrowers with low credit scores, calls it a “concern”.

Dennis Ross, a Florida Republican, takes issue with Bernanke’s position that the debt ceiling should not be used to negotiate fiscal policy. There could be a big fight in the autumn over the need to raise the US borrowing limit, which Republicans may not agree to unless long-term spending cuts are put in place, with no tax increases. Many Democrats object.

Bernanke says the 2011 experience showed messing with the debt ceiling could have an impact. “The last time around, it was harmful to the economy”

Bernanke says raising the debt limit is not approving new spending, it reflects already occurred spending. He says not doing so would provide a “shock” to the economy, a default would be “extremely disruptive”. But he notes that long-term fiscal measures should be discussed separately.

“How will you prevent a catastrophic spike in interest rates ?” Mr Bernanke is asked related to QE tapering. “By communicating,” the Fed chair responds.

Bernanke says it will be possible to remove accomodation without inflation. “We know how to exit, we know how to do it without inflation, of course there’s a chance of doing it too late,” he says.

Chairman Hensarling is giving each lawmaker remaining in the room 2 minutes for questions, since Bernanke has to leave soon.

One of the last questions will come from Michele Bachmann, the staunchly conservative Republican from Minnesota and 2012 GOP presidential candidate. Asks if Treasury has been “cooking the books” in its reporting of its debt tallies. Bernanke say it may go down to extraordinary measures taken to stay under borrowing limit.

Bernanke hearing ends – next up the Fed chairman will be addressing the Senate finance committee tomorrow.

That wraps up our coverage of today’s hearing. Join us on for further analysis of Bernanke’s message to lawmakers as well as the release of the Fed’s Beige Book report on regional economic trends, due out at 7pm BST.