Easing Up On Jobs Bill

WASHINGTON — Federal Reserve chairman Ben S. Bernanke yesterday cautioned lawmakers against pushing for a job-creation bill right now, saying the first federal stimulus law has not fully affected the economy and that it may be “early to do more fiscal actions.”

Bernanke made the remark when he appeared before the Senate Banking Committee, which must decide whether to recommend the full Senate confirm him for a second four-year term.

Congress and the Obama Administration are considering crafting legislation for job creation that would combat the 10.2% national unemployment rate, which could change today when the Labor Department releases the rate for November.

Bernanke said only 30% of the funds from the American Recovery and Reinvestment Act have been allocated and it’s unlikely all the money has been spent. But he admitted that unemployment is the “biggest ... most difficult challenge we face right now.”

Lawmakers already are considering a second stimulus effort to boost employment. On Wednesday, House Transportation Committee chairman James L. Oberstar, D-Minn., said he would push for $69 billion of infrastructure grants to states to be included in any job-creation bill. And yesterday, Sen. Charles Grassley, R-Iowa, the top Republican on the Senate Finance Committee, introduced a renewable energy bill designed to create jobs.

Senators also questioned Bernanke about the Fed’s exit strategy for lending and asset-purchase programs started amid the credit crisis, as well as resolution authority to wind down failed fims and inflation.

Bernanke detailed the central bank’s proposed exit strategy. Only about 15% of its lending dollar amount from the emergency facilities remains outstanding, he said. He noted that the Fed ended its Treasury purchases in October. Purchases of government-sponsored enterprises’ debt and mortgage-backed securities are expected to be concluded by the end of the first quarter of 2010. The Fed will consider raising interest rates and paying interest on the reserves banks hold with it, he said.

Bernanke defended the Fed’s ability to make independent monetary decisions in the wake of an amendment that was attached last month to a financial regulatory reform bill in the House that would allow the Government Accountability Office to audit the Fed’s monetary decisions. He said Congress passed the monetary policy exemption in 1978 just as then-Fed chairman Paul Volcker was raising interest rates to combat runaway inflation.

Volcker’s situation is a “case study of why Fed policy independence is so critical,” Bernanke said. “Congress is no longer respecting that zone of independence.”

The move toward increased oversight of the Fed comes as lawmakers continue to question its responses to the credit crisis. Sen. Jim Bunning, R-Ky., and others sharply criticized Bernanke for allowing counterparties in credit-default swaps with American International Group Inc. to be paid 100 cents on the dollar.

“I don’t understand that at all,” said committee chairman Christopher Dodd, D-Conn., adding that it’s “hard to accept.”

But Bernanke said he did not have the authority to leverage lower payments to the counterparties. “I don’t abuse my supervisory power,” he said.

Bernanke also said Congress should apply the Federal Deposit Insurance Corp.’s ability to wind down failed banks to more complex institutions like insurance and investment firms. The Fed could provide short-term liquidity to facilitate the wind down, he said.

Upcoming Events

Already a subscriber? Log in here
Please note you must now log in with your email address and password.