The Fed ``will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,'' Bernanke said in testimony to the House Financial Services Committee in Washington.
Bernanke did acknowledge in his testimony that inflation has risen, but he still thinks that inflation will moderate as economic growth slows. It is sad that we have a Fed Chairman who still believes that growth is what causes inflation. Inflation is always and everywhere a monetary phenomenon - something over which the Fed has direct control.
Most of the questioning from the clueless Congresspersons was concentrated on questions about regulating the lending industry. In his prepared testimony Bernanke said:
During the housing sector's expansion phase, increasingly lax lending standards, particularly in the subprime market, raised the effective demand for housing, pushing up prices and stimulating construction activity.
I suppose Bernanke thinks that the problem was created by lax lending standards and a lack of oversight by his predecessor, but anyone who doesn't make a living fixing the price of credit knows it was caused by artificially low interest rates. Rather than acknowledge the obvious, Bernanke and Congress will probably come up with more regulations that will only increase the cost and reduce the availability of credit to the same sub prime borrowers politicians were brow beating banks into lending to a few years ago.
This semi annual exercise in economic illiteracy is required by law; maybe we could pass a law requiring politicians to read something by Milton Friedman or Hayek or von Mises.