Fed chief to face grilling before Congress

Associated Press

WASHINGTON

Federal Reserve Chairman Ben Bernanke may feel surrounded when he testifies before Congress on Thursday.

From his left, Democrats will demand to know what the Fed can do to create jobs, especially after the government reported last week that unemployment rose to 9.2 percent in June and the economy generated just 18,000 net new jobs.

From his right, Republicans likely will question the Fed’s complicity in high energy and food prices.

But Bernanke won’t just play defense.

He’s expected to issue a strong warning to lawmakers to raise the nation’s debt limit before an Aug. 2 deadline. On that day, the government won’t have enough money to pay all its bills and could default on its debt. “We believe he will be very harsh and direct when it comes to the issue of a U.S. default,” says David Kotok, chairman of the investment firm Cumberland Advisors. “He will ask the Congress not to play games with the debt limit.”

Negotiations have bogged down. Republicans reject Democratic proposals to include any tax increases in any deal to slash the federal government’s deficits in exchange for raising the $14.3 trillion debt limit. Economists fear the threat of default will send interest rates soaring and risk tipping the economy back into recession.

Bernanke also is expected to once again urge Congress to postpone deep spending cuts as part of any deficit-reduction plan. He believes big cuts right away would jeopardize the economy.