Bernanke Appears Before Senate

Federal Reserve Chairman Ben Bernanke Thursday repeated an upbeat assessment of the U.S. economy's health and warned again about inflation risks in a second day of testimony on Capitol Hill.

Bernanke told the Senate Banking Committee the U.S. expansion remained "on track" but suggested some more interest-rate rises are needed to keep inflation at bay.

"The economy now appears to be operating at a relatively high level of resource utilization," he said in remarks that matched an opening statement he delivered to a House panel Wednesday.

"The risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately — in the absence of countervailing monetary policy action — to further upward pressure on inflation," Bernanke said.

Immediately after Bernanke's opening remarks, the committee adjourned briefly for a vote that delayed the question-and-answer period, where lawmakers have a chance to push Bernanke to expound on his views of the economy's health.

The new Fed chief, sworn in as Alan Greenspan's replacement on Feb. 1, was expected to once again dodge lawmakers' attempts to seek his views on how to fix burgeoning government red ink, as he did in his first congressional appearance before the House Financial Services Committee.

Republican Sen. Jim Bunning of Kentucky, participating in Thursday's hearing, praised Bernanke for his plain-speaking style and criticized Greenspan's forays into issues that had no bearing on monetary policy. He advised Bernanke to avoid Greenspan's example.

"Do not try to follow in your predecessor's footsteps," Bunning told Bernanke. "In other words, be yourself, don't be 'Greenspan lite.'"

Bernanke's appearance the previous day drew generally high marks from financial analysts, who said Bernanke's straightforward style and crisp answers were a welcome departure from Greenspan's often elliptical remarks.

"For the first time in 18 years, we managed to get through one of these semiannual congressional testimonies without a bottle of Advil in one hand and a Thesaurus in the other," wrote David Rosenberg, chief North American economist at Merrill Lynch.

In his Capitol Hill testimony, Bernanke stressed the Fed's commitment to keep inflation contained and noted the economy also faced a number of downside risks.

His testimony on Wednesday left expectations for further rates hikes from the Fed little changed.

The U.S. central bank has raised overnight interest rates to 4.5 percent in 14 small steps dating to June 2004. Markets expect another quarter-percentage point rate hike when Bernanke leads his first policy-making session on March 27-28 and a good chance of a second one by mid-year.

A Reuters poll taken after Bernanke's first round of testimony on Wednesday showed 18 of 20 U.S. primary dealers foresaw a rise in the benchmark federal funds overnight rate to 4.75 percent in March from the current 4.5 percent.

Only nine saw rates rising to 5 percent in May, though that trails expectations in the futures markets for further tightening.