Federal Reserve Chairman Ben Bernanke, making a case for a second term, told Congress on Thursday the U.S. central bank's forceful actions prevented a devastating financial crisis from being even worse.
The Federal Reserve's actions have contributed substantially to the significant improvement in financial conditions and to what now appear to be the beginnings of a turnaround in both the U.S. and foreign economies, he said in testimony prepared for delivery to the Senate Banking Committee at a hearing on his renomination to be Fed chair.
Bernanke, whose first four-year term at the helm of the central bank expires on January 31, faces an unusually high level of opposition from lawmakers critical of the Fed's actions leading up to and during the financial crisis.
Even so, his confirmation does not appear in doubt.
In a forceful defense of the Fed's crisis-battling efforts -- many of which were new in the annals of central banking -- Bernanke said authorities had prevented a calamity.
As serious as the effects of the crisis have been, however, the outcome could have been markedly worse without the strong actions taken by the Congress, the Treasury Department, the Federal Reserve, the Federal Deposit Insurance Corporation, and other authorities both here and abroad, he said.
Most signs point to stabilizing financial markets and an economy tiptoeing out of recession, Bernanke added.
The Fed will calibrate carefully its withdrawal of ultra-low interest rates and the floods of cash it has pumped in the financial system, he said.
We are ... keenly aware that, to ensure longer-term economic stability, we must be prepared to withdraw the extraordinary policy support in a smooth and timely way as markets and the economy recovery, he said. Determining the appropriate time and pace for the withdrawal of stimulus will require careful analysis and judgment.
He also used his testimony to urge Congress to leave the Fed's political independence intact, an effort to push back against proposals that would open the Fed's monetary policy decision-making to congressional audits.
Bernanke said the Fed would be tougher and more proactive regulator and he defended the Fed's decentralized system that includes 12 regional Fed banks.
(Reporting by Mark Felsenthal)