WASHINGTON – New Federal Reserve Chairman Ben Bernanke is expected to offer an upbeat assessment of the U.S. economy but little fresh guidance on interest rates as he takes his first turn in what is always a powerful spotlight.
Bernanke, who took the Fed's reins on Feb. 1 from Alan Greenspan, is set to deliver the central bank's semiannual report on monetary policy before a House of Representatives' panel on Wednesday and return to Capitol Hill on Thursday for a performance in the Senate.
His maiden congressional voyage as Fed chief comes at a particularly tricky time for U.S. monetary policy.
A few weeks ago, the Fed seemed close to ending a 19-month offensive against inflation that has now lifted benchmark overnight rates to 4.5 percent in 14 baby steps.
That looks far less certain now.
The future of the largely automatic rate-rise campaign has become increasingly clouded as signs of renewed economic vigor and a surprise drop in the unemployment rate have financial markets betting the Fed still has more work to do in erecting a bulwark against inflation.
Bernanke, an avowed champion of central bank transparency, may find it difficult to offer much sense of how much more rates may need to rise given the murky outlook.
"Coming out of Greenspan's shadow is a difficult enough task for anyone," economist Stephen Gallagher of Societe Generale in New York said in a research note. "The burden of that task is complicated by the immediate economic situation."
Toeing the Party Line
Bernanke, a former Fed governor who returned as head of the central bank after a stint as a top economic adviser to President George W. Bush, is expected to hew closely to guidance offered by the Fed on January 31, Greenspan's final day.
After raising rates for the 14th time, the Fed kept its options open, saying more hikes may lie ahead but that incoming data would drive decision-making.
"Possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures," the Fed said, alluding to tight labor markets.
Bernanke is expected to restate those concerns this week.
"He will stress the nature of the initial conditions: an economy at full employment likely to be growing at an above-trend rate in the first half of this year, and inflation already near the upper end of the comfort zone," Larry Meyer and Brian Sack of Macroeconomic Advisers wrote in a report to clients.
The report Bernanke is to deliver to Congress will include two-year economic forecasts from each Fed policy-maker.
Some officials have said the economy looked on track for a soft landing this year, combining a noninflationary growth pace of around 3.5 percent with full employment.
But these cheery forecasts were compiled before news that the U.S. jobless rate fell to a 4-1/2 year low of 4.7 percent in January, a level some observers think low enough to spark an inflationary climb in wages.
While many economists think overnight rates are near a level that neither boosts nor weighs on economic growth — the "neutral" ideal that was the Fed's original goal — some analysts now think the central bank will have to go further and use rates to actively slow the economy.
"Even with the funds rate in the range of neutral, further changes in policy may be appropriate," Chicago Fed President Michael Moskow warned last week.
While the Fed is currently more focused on the potential for inflation, the outlook has downside risks as well.
Analysts are keen to hear Bernanke's view on what a slowing U.S. housing market might mean for the economy down the road.
While the new Fed chief has said he plans to avoid being drawn into partisan battles on fiscal policy, there are some matters on lawmakers' plates he may be prepared to address.
He will likely face questions on the potential dangers posed by the $1.4 trillion investment portfolios of mortgage market giants Fannie Mae and Freddie Mac.
Bernanke has endorsed congressional efforts to tighten regulation of the two government-sponsored enterprises and has said caps on their hefty portfolios could lessen risks to financial markets at large.