Chairman Bernanke Faces Questions on Inflation

Federal Reserve Chairman Ben Bernanke will deliver his semi-annual report later this week. The Chairman is expected to face extensive questioning over fears surrounding inflation in the US economy in addition to the stubborn unemployment rate.

The Republicans, who prefer the Federal Reserve to focus on tamping down inflationary risks, are invigorated by the rising oil and wheat prices. The Fed’s policy is aimed at encouraging economic growth and job creation by keeping short-term interest rates close to zero and buying $600 billion in Treasury bonds through the early summer. Policy makers at the Federal Reserve are focused on maintaining this course of action unless the higher food and energy prices become causes of inflationary concern.

Republicans criticize the policies on the basis that the Federal Reserve’s current policy may cause inflation, and they are likely to subject the Chairman to extensive questioning on this point. John Silvia, an economist of Wells Fargo, predicts that the points the Republicans will bring up will range from it being too lax in its accommodative monetary policy, as well as the effect that rising commodity prices will play in the future.

Another major area of concern for Republican’s is the Fed’s bond-buying policy. The apprehension over this stems from the idea that the policy might pump too much money into the economy that it would cause consumer prices to rise. House Budget Committee Chairman Paul Ryan (R-WI) has put pressure on the Fed pushing for a mandate for the Fed to focus solely on tamping down inflationary pressures and maintaining price stability.

John Taylor, a Stanford University economist, advised Congressman Ryan on this issue and is quoted in the Wall Street Journal saying that the single-mandate plan proposed by the Congressman would have the effect of allowing the central bank room to maneuver in response to financial crises, but provide a monetary policy that “doesn’t have a lot of surprises.” He went on to say that the Federal Reserve currently has departed from previous efforts and verged on a highly discretionary policy-making entity.

Sources:

http://online.wsj.com/article/SB10001424052748704293304576169302649189560.html

http://www.cnbc.com/id/41827865

http://www.marketwatch.com/story/ny-feds-dudley-joins-tough-talk-on-inflation-2011-02-28?reflink=MW_news_stmp