Congress to hear Bernanke, Paulson on market strain

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(Agencies)
Updated: 2008-07-15 14:13

WASHINGTON - Discussion of persistent financial market turmoil is seen as likely to overshadow the Federal Reserve's semi-annual monetary policy outlook when Fed Chairman Ben Bernanke testifies before Congress on Tuesday.

Fed Chairman Ben Bernanke speaks at the Federal Reserve Bank of Chicago's Annual Conference on Bank Structure and Competition May 15, 2008. [Agencies]

Bernanke is due to present semi-annual monetary policy to the Senate Banking Committee at 10 am EDT.

In a sign lawmakers want to hear more about current financial strains and an unprecedented government show of support for embattled mortgage finance markets, the panel on Monday added Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox to the witness list.

The Fed said in late June that the risks that growth will sputter have diminished while concerns that inflation might spike higher have gained.

The US central bank has held interest rates steady at 2 percent since April after lowering them from 5.25 percent, since last August. Policy-makers have indicated they prefer not to lower rates further and are waiting for an opportunity to raise borrowing costs to squelch troubling inflation.

But financial market turmoil has intensified and is likely to preoccupy lawmakers on Tuesday and the next day, when Bernanke delivers the Fed report to the House Financial Services panel.

Nervousness about market stability is rife after the government took over failed bank IndyMac (IMB.N) on Friday and the Treasury Department and the Fed announced steps aimed at reassuring markets they stand squarely behind mortgage finance enterprise providers Fannie Mae (FNM.N) and Freddie Mac (FRE.N).

Stock indexes have tumbled into bear market territory as financial firm share prices have plummeted over worries about exposures to delinquent loans.

The two mortgage buyers are congressionally chartered to help expand homeownership but are privately held. While the government does not explicitly guarantee their debt, a sharp decline in their share values last week led to actions that strengthened US commitments to prevent either mortgage firm from failing.

Bernanke's appearance on Tuesday will be his first extensive public comments on the rescue plan.