Bernanke Faces Congress, Says Fed Easing Strains

The U.S. Federal Reserve believes the extraordinary programs aimed at stabilizing credit and banking have improved market conditions and eased strains despite a drumbeat of negative economic news, Fed Chairman Ben Bernanke said Tuesday.

Dennis Cook / AP

"We have been encouraged by the responses to these programs,'' Bernanke said in testimony to the House Financial Services Committee.

Bernanke's comments failed to calm disquiet in the stock market, however. The Dow Jones Industrial Average was sharply lower Tuesday.

"The comments are pretty straight forward," Kurt Karl, head of economic research and consulting at Swiss Re, told Reuters. "Of course it doesn't reassure the market. It is not terribly revealing. It does not look like there is any new information here."

Bernanke said aggressive responses by the Fed and other central banks to the financial crisis of the last 18 months have helped reduced interbank lending rates internationally and taken some of the steam out of liquidity pressures at the end of 2008.

Lawmakers at the hearing expressed concern about the Fed's use of emergency powers and disclosure of information surrounding special lending facilities.

However, Frank, a Massachusetts Democrat, added he believes the Fed has used its authority responsibly in the crisis.

Fed officials are considering providing the public with more information about the central bank's balance sheet and lending policies, Bernanke said.

The Fed has more than doubled the size of its balance sheet to greater than $1.8 trillion since the middle of last year as it has pumped money into the financial system and propped up failing institutions.

Earlier on Tuesday, the Fed announced it would expand a program aimed at supporting consumer lending to $1 trillion from $200 billion as part of the Obama administration's initiative to rescue the banking sector.

Bernanke told the panel that 95 percent of the Fed's lending, worth about $1.9 trillion, is "extremely safe.'' The remainder of the Fed's lending linked to its propping up of investment bank Bear Stearns and insurer American International Group is "a bit less secure,'' but not likely to lose money, he added.

Bernanke said the Fed has unfurled emergency authorities not used since the 1930s to stabilize financial markets. As financial conditions improve and markets return to normal, the Fed will unwind those programs, he said.