Bernanke Tells Lawmakers Rates to Stay Low

BY Jason M. Breslow  February 24, 2010 at 1:44 PM EST

Federal Reserve Chairman Ben Bernanke told lawmakers Wednesday that though the economy is in recovery, the central bank will keep interest rates at record-low levels to stave off a return to recession.

Bernanke’s appearance before the House Financial Services Committee marked his first return to Capitol Hill since being confirmed in January to a second term as Fed chairman. In prepared remarks to the committee, he told lawmakers that weakness in the job market warrants keeping the federal funds rate “exceptionally low for an extended period.”

Following his testimony, Bernanke faced questions over how to create jobs in the face of record deficits. While unemployment “is the biggest problem that we have,” Bernanke acknowledged, “… there are difficult trade-offs.” Nevertheless, Bernanke said he didn’t expect the United States to lose its AAA credit-rating — the top rating available. A downgrade would signal the U.S. has moved closer to default.

The question-and-answer session took an unusual turn when longtime Fed critic Rep. Ron Paul, R-Texas, suggested money for the Watergate break-in came from the central bank. Paul also accused the Fed of loaning $5.5 billion to the regime of Saddam Hussein.

Bernanke called the allegations “absolutely bizarre.” But in a nod to complaints over a lack of transparency at the Fed, backed legislation that would allow auditors to review the bank’s special lending programs.

Bernanke stopped short, however, of supporting a broader push to open the Fed’s entire policy-making process to congressional auditors. Interest-rate policy should be “insulated from short-term political pressures,” he said, while adding that “on matters related to the conduct of monetary policy, the Federal Reserve is already one of the most transparent central banks in the world.”

Bernanke’s appearance Wednesday was part of his semiannual report on monetary policy to Congress. On Thursday, he’ll address lawmakers in the Senate.