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Bernanke Signals Slow Recovery, Defends Fed’s Powers

Fed chief Ben Bernanke told a Senate panel on Wednesday that economic recovery should begin soon, albeit slowly at first. A financial analyst and a lawmaker speak with Ray Suarez about the testimony.

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    Still to come on the NewsHour tonight: tales of Twitter and Secretary Clinton in Asia.

    That follows the second day of questions for Fed Chairman Bernanke. Ray Suarez has that story.


    Those tough questions came today before the Senate Banking Committee. Top of the agenda for senators: the Fed's authority and its response to the financial crisis.

    Chairman Chris Dodd of Connecticut.

  • SEN. CHRIS DODD, D-Conn.:

    As we talk about these large institutions, with the powers that already exist within the Fed over bank-holding companies, we get up here and jawbone and ask these institutions to make a difference, but the Fed actually has the authority to make that difference. And there are many asking the question why that authority is not being exercised to convince these institutions that they need to be moving more aggressively when it comes to bank lending.


    Richard Shelby of Alabama, the committee's ranking Republican, said he disagreed with an administration proposal to give the Fed more regulatory power.


    In the end, it was the failure, I believe, of the Fed to adequately supervise our largest financial institutions that required the deployment of its monetary policy resources to stave off financial disaster. In light of the Fed's record of failure as a bank regulator, it should come as no surprise that Congress is taking a closer look at the Fed and reconsidering its regulatory mandate.


    Some senators supported Bernanke's work during the economic crisis. Still, many had questions and criticism.

    Democrat Chuck Schumer of New York pressed the chairman on the Fed's new rules for the credit card industry. A new law signed by the president two months ago sets other new protections for consumers. They kick in early next year.


    I don't think we can afford to wait until our legislation goes into effect. Can the Fed take some actions now, which you have the power to do, to deal with these practices, some of which are clearly predatory?

    BEN BERNANKE, Federal Reserve chairman: I agree with you, it's a problem. But as we discussed earlier, and I got back to you, you know, we just didn't think we had the authority, given the process involved, to move it up substantially.


    Bernanke told Republican Senator David Vitter of Louisiana he opposes giving Congress the power to audit monetary policy.


    I think that the Congress and the public ought to have comfort and confidence that all the operations that we run, all the lending we're doing, all those things are done at the highest standard of quality, with appropriate controls, appropriate attention to collateral and to the taxpayers' interest.

    I'm just concerned about what might look like an attempt on Congress's part to — even if indirectly — try to send a message, if you will, to FOMC to take a different action than it thinks is in the long-run interest of the economy.


    Well, again, I think that's really exaggerated. I think that possible danger would be even further mitigated if these broader audits are regularly scheduled. And it seems to me, in all of that context, regularly scheduled audits are nothing more significant in terms of any danger of interference.


    For his part, Bernanke — whose term as a chairman expires next year, unless he's reappointed by the president — has taken a more public role in recent months to explain the Fed's actions.

    In March, he sat down with "60 Minutes" for the first television interview with a Fed chairman in 22 years. Yesterday, he published an op-ed in the Wall Street Journal. On Sunday, he'll sit down with Jim Lehrer and answer questions from a Kansas City audience in an hour-long forum.

    For more on the emerging tensions between legislators and the Federal Reserve chairman, we turn to Martin Baily, senior fellow of economic studies at the Brookings Institution. Baily was chairman of the Council of Economic Advisers during the Clinton administration.

    And Republican Congressman Scott Garrett of New Jersey, he sits on the House Banking Committee, where Chairman Bernanke testified yesterday, and joins us from Capitol Hill.

    And, Representative Garrett, you are the author of a letter to President Obama with a long list of bipartisan cosignatories asking the president not to allow the Fed any more powers until it's investigated. What would you want a probe to look at?