Bernanke Says Fed Has Tools To Fight Inflation

Federal Reserve Chairman Ben Bernanke is on Capitol Hill this week seeking to reassure lawmakers about the state of the economy. He told them Tuesday that as the economy begins to recover, the Fed will be on the lookout for inflation and has the tools to fight it.

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Ben Bernanke's language also gets a good deal of scrutiny. The Federal Reserve chairman is on Capitol Hill this week seeking to reassure lawmakers about the state of the economy. He told them yesterday that as the economy begins to recover, the Fed will be on the lookout for inflation and has the tools to fight it. NPR's John Ydstie has more.

JOHN YDSTIE: Bernanke will spend a second day on Capitol Hill providing lawmakers with the Fed's twice-yearly assessment of the U.S. economy. Yesterday, he told members of the House Financial Services Committee that there are some glimmers of hope. The rate of decline in the economy has slowed significantly, he said, and there are signs of stabilization. But he warned the country is still in for a long haul.

Mr. BEN BERNANKE (Chairman, the Federal Reserve): Because even though if the economy begins to turn up in terms of production, unemployment is going to stay high for quite a while. And so it's not going to feel like a really strong economy.

YDSTIE: Bernanke also addressed the concerns of lawmakers and investors that the Fed will leave stimulative monetary policy in place too long and spark damaging inflation. Florida Congressman Bill Posey was among those expressing concern.

Representative BILL POSEY (Republican, Florida): Certainly, unless that money gets sucked back in…

Mr. BERNANKE: Exactly.

Representative POSEY: …and out of circulation, it's going to cause inflation. There's no denying it.

Mr. BERNANKE: If it's not sucked back in, but as I was describing, we have ways of sucking it back in.

YDSTIE: Bernanke did acknowledge that choosing the right time to remove the stimulus will be challenging.

Mr. BERNANKE: It's a very difficult problem. Even though we have these unusual circumstances, it's really the same problem we always face, which you just pointed out, it's picking the right moment to begin to tighten and picking the appropriate pace of tightening.

YDSTIE: Given the depths of the recession, Bernanke suggested the time for tightening is still a long way off. In fact, he also got questions, like this one from Delaware Republican Michael Castle, about whether a second congressional stimulus package is needed.

Representative MICHAEL CASTLE (Republican, Delaware): Would you agree with that? I mean, I've heard your reference to the fact that the first stimulus is still being spent out there and has a long ways to go.

Mr. BERNANKE: Yeah, I think it's very early. Less than a quarter of the first stimulus has been spent. We'll have to see how the economy evolves. So I think it's premature to make any judgments about that.

YDSTIE: Chairman Bernanke also told lawmakers it's time for them to put a plan in place to reign in the unsustainable spending that's driven deficits above a trillion dollars annually.

John Ydstie, NPR News, Washington.

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