| NEW YORK
NEW YORK Ben Bernanke may have cleared the hurdles to his confirmation for a second term as Federal Reserve chairman, but that does not mean lawmakers will be any friendlier to him at high-profile hearings on Wednesday and Thursday.
The Fed chief's semiannual report to Congress should feature both impassioned debate over financial regulation and lots of questions about the central bank's evolving strategy to remove unprecedented monetary stimulus from the financial system.
With the economy just emerging from the worst recession since the Great Depression, the Fed and its chairman have come under fire for not doing enough to prevent the financial meltdown. Bernanke was confirmed late last month by a 70-30 margin, the tightest-ever Senate vote for a Fed chairman.
"Perhaps the most interesting part of the testimony will be the way the oversight committees treat the chairman, after the hostility they've recently displayed toward the Federal Reserve and Bernanke himself, especially through the confirmation struggle," said Larry Meyer, a former Fed Board governor now with Macroeconomic Advisers.
In a sense, Bernanke has already previewed Wednesday's testimony. Earlier this month, the Fed released his prepared remarks to be delivered before the very same U.S. House Financial Services Committee, though the hearing never took place because of a severe snow storm.
Given the level of detail provided in that speech, and internal disagreement within the Fed on key details about the best sequencing of exit steps, Bernanke would be hard-pressed to unveil too much more on that front.
"I don't expect anything terribly new given the fact that he just got confirmed recently and just did this testimony," said Larry Kantor, head of research at Barclays Capital.
Instead, Bernanke will try to reinforce the notion that last week's increase in the discount rate charged to banks for emergency loans was a technical move, not a policy shift.
He will also use the opportunity to defend the central bank's role in financial supervision, which has come under attack from some reform proposals floated in the Senate.
With the details of new regulatory approach still very much in play, Bernanke may be asked for his views on the "Volcker" rule, a much-debated measure launched by White House adviser Paul Volcker that would reinstate a separation between the speculative activities of big financial firms and their brick-and-mortar lending.
He could also be asked about the wisdom of setting up a consumer financial protection agency, an idea he has broadly supported in the past.
ONE EXIT, MANY TOOLS
Bernanke is sure to use the forum, formerly known as the Humphrey-Hawkins testimony, to reiterate the range of tools available to the Fed to remove the extraordinary monetary support employed to deal with the crisis.
The Fed not only slashed interest rates close to zero, but also created a range of short-term lending facilities to boost market liquidity. It also purchased over $1.7 trillion in Treasury bonds and mortgage-linked debt.
Bernanke and others on the Fed's Washington-based board have shown a preference for using the interest paid on bank reserves and reserve-draining operations as the primary tool for tightening policy. Manipulating the federal funds rate has become more difficult because of the increased volume of reserves.
Bank reserves held at the Fed on any given week have mushroomed from around $6 billion or so before the crisis to about $1.2 trillion currently.
Minutes from the Fed's January meeting, released last week, showed a number of officials favor selling some of the assets during the crisis.
The minutes did flag two key events to watch for in coming months, but suggested they would only come by spring. These include using mortgage debt as collateral for reverse repurchase agreements, and securing a broader range of counterparties for such operations, which allow the Fed to remove funds from the banking system.