Bernanke blames Congress again, notes deflation

Fed Chief Reaffirms Fervor for Stimulus by Binyamin Appelbaum

The Federal Reserve’s chairman, Ben S. Bernanke, emphasized on Wednesday that the central bank remains committed to bolstering the economy, insisting that any deceleration in the Fed’s stimulus campaign will happen because it is achieving its goals, not because it has lowered its sights. 

Mr. Bernanke said he still expected to reach that point in the coming months but, in what may have been his final appearance before the House Financial Services Committee, he cautioned that Congress itself posed the greatest risk to growth. 

“The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery,” he told the committee....

Analysts said that the strongest new signal Mr. Bernanke delivered in recent weeks concerned the sluggish pace of inflation. Prices rose just 1 percent during the 12 months ending in May, well below the 2 percent pace that the Fed considers healthy. Fed officials insisted for much of the year that inflation would rebound from the lowest pace on record.In recent weeks, the Fed has emphasized that it will take action if inflation does not. On Wednesday, Mr. Bernanke put inflation alongside unemployment as the justification for the Fed’s continuing efforts. 

“Our intention is to keep monetary policy highly accommodative for the foreseeable future, and the reason that’s necessary is because inflation is below our target and unemployment is still quite high,” Mr. Bernanke told the committee. 

Michael Feroli, chief United States economist at JPMorgan Chase, noted that Mr. Bernanke also cited the risk of deflation, something he had not done for several years. “The mention of deflation risks, rather than just low inflation, is a fairly strong statement coming from a sitting central bank chief,” Mr. Feroli wrote. 

Mr. Bernanke also emphasized that the Fed would not be satisfied with a decline in the unemployment rate if it was driven by people giving up the search for work rather than people finding new jobs. Importantly, he described this as a reason the Fed might extend its policy of low interest rates but not asset purchases.