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Hensarling challenges Fed’s monetary policy, Bernanke defends asset-buying

Jeb Hensarling

Jeb Hensarling

Jeb Hensarling, the chairman of the House Financial Services Committee, challenged the Federal Reserve’s monetary policy last week, saying that the fiscal challenges facing the nation “cannot be solved by the Fed.”

Hensarling told Fed Chairman Ben Bernanke, who appeared before the HFSC on Wednesday, that the Fed’s accommodative monetary policy will damage the economy by raising inflation, The Hill reports.

“For diminishing marginal benefits, the Federal Reserve’s unconventional strategy creates considerable risks,” Hensarling said, according to The Hill.

Bernanke said that, under the central bank’s bond-buying program, there is little risk of inflation or asset-price bubbles.

“We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery,” Bernanke said, Bloomberg reports. “Inflation is currently subdued, and inflation expectations appear well-anchored.”

The Fed is currently purchasing $85 billion in bonds every month, raising concerns that the $3.1 trillion balance sheet could encourage investors to take on excessive risk and may complicate the Fed’s exit from quantitative easing, a process involving the purchase of financial assets from commercial banks to provide economic stimulus.

Bernanke said that the Fed’s policies “are increasing demand globally and helping not only our businesses but the businesses in other countries that export to us,” adding that “this is not a beggar-thy-neighbor policy,” according to Bloomberg.

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