WASHINGTON — Federal Reserve Chairman Ben Bernanke launched a more aggressive defense of the central bank's multitrillion-dollar campaign to prop up the economy, as government bailouts came under fire Tuesday on Capitol Hill.
Lawmakers were reluctant to second-guess rescues and interventions in the darkest days of the financial crisis. But now, with the financial system stabilizing and the unemployment rate at 9.5 percent and climbing, there is deepening frustration in Congress and around the country that there is not more to show from the trillions of dollars the government has put at risk.
Bernanke argued before the House Financial Services Committee that the Fed's actions helped prevent a global economic calamity, and he promised an exit strategy to head off fears of inflation.
Typically, Bernanke begins his semiannual testimony on monetary policy with a dry statement of the state of the economy.
On Tuesday, he opened his remarks much more forcefully: "Aggressive policy actions taken around the world last fall may well have averted the collapse of the global financial system."
Bernanke argued that "many of the improvements in financial conditions can be traced, in part, to policy actions taken by the Federal Reserve," including cutting interest rates nearly to zero and complex new programs to restart lending.
"He came out swinging," said Michael Feroli, a senior economist at J.P. Morgan Chase. "It seemed like a pretty pointed response to some of the Fed's critics."
Confronted with concerns that the Fed's actions could promote inflation, Bernanke explained how the central bank plans to unwind its $2 trillion balance sheet. Bernanke plans to use the Fed's power to pay interest on bank reserves to suck money out of circulation and raise interest rates.
The most spirited exchanges were over a bill, long advocated by Rep. Ron Paul, R-Texas, and now sponsored by a majority of House members, to allow the Government Accountability Office to audit the Fed's conduct of monetary policy.
Bernanke and many private economists view GAO audits of monetary policy as a threat to the central bank's independence and credibility in fighting inflation, thinking it likely that Congress will order up investigations whenever the Fed is raising interest rates. He argued that such investigations could lead investors to expect higher inflation in the longer run.
"If we were to raise interest rates at a meeting and someone in the Congress didn't like that and said I want the GAO to audit that decision, wouldn't that be viewed as an interference?" Bernanke asked.
"This is just reviewing it," Paul said. "And you can do what you want."