Bernanke under fire again on Capitol Hill

NEW YORK (CNNMoney) -- Federal Reserve Chairman Ben Bernanke had an unhappy tea party on Capitol Hill Wednesday.

In his appearance before the House Financial Services Committee Wednesday, Bernanke faced criticism from a number of House Republican freshmen, as well as Texas Republican Ron Paul, a long-time critic of the chairman and a hero of many in the so-called Tea Party movement.

"It has been said ever since the crisis hit that one of the causes was that interest rates were kept too low too long," Paul said in his opening statement. "And now the treatment of the last couple of years has been to keep the interest rates much lower for even a longer time."

Paul criticized Bernanke's testimony that higher commodity prices would cause only a "temporary and relatively modest increase" in broader prices. Paul argued inflation is much higher than the government's official Consumer Price Index would suggest. He also said that the usual suspects like political instability in the Middle East and bad crop yields overseas, were not the true culprits.

Paul said inflation poses a "deadly threat" to the economy, and said that the Federal Reserve system itself, as well as its monetary policy, is the underlying cause.

Several new Republican members of the committee used their opening argument to attack the federal deficit, rather than addressing any specific policy of the Federal Reserve. They suggested that stimulus efforts by both the Fed and Congress was a mistake.

"Just like the Beatles sang 'you can't buy me love,' you can't buy an economic recovery," said Rep. Quico Canseco of Texas.

Bernanke's recent statements that Congress shouldn't tie a vote on raising the federal government's debt ceiling to an agreement on spending cuts also was criticized.

David Schweikert of Arizona said that unless those who want to cut spending threaten not to raise the debt ceiling, there's little chance of getting the needed cuts in spending.

"This body doesn't move unless there is a crisis," he said.

But Bernanke had his defenders from Democrats on the committee. Democrat Melvin Watt of North Carolina said the demands for spending cuts by Republicans demonstrates the wisdom of having an independent Federal Reserve that could focus on economic policy rather than political winds.

Barney Frank, the Massachusetts Democrat who lost the chairmanship of the committee when Democrats lost control of the House, said the Fed in recent years proved to be wise.

"There have been a series of criticisms made and negative predictions [about Fed policy] and in my view, none of them have come true," said Frank.

As Congress debates spending levels for the rest of the fiscal year, Bernanke seemed to weigh in against Republican proposals to cut up to $61 billion in spending by the end of September. He said such cuts would likely cost about 200,000 jobs and shave a few tenths of a percentage point off the economic growth rate.

"We need to keep our eye on deficit reduction but we need to do it in a long-term framework," he said in response to one Democrat's question.

But Bernanke said cutting federal deficits is an important goal for Congress, and that if deficits continue to be above $1 trillion a year it won't be sustainable, that investors will demand higher interest rates on government debt and just create a worse budget squeeze.

"Like any firm or family, if you borrow more than you can repay, eventually you're going to get into trouble," he said.

There were limited questions about the Fed's controversial policy of buying additional Treasuries to pump money into the economy, known as quantitative easing. Some Democrats praised the policy, while a few Republicans criticized it, both for fears it could feed inflation down the road as well as for questions about how effective it has been.

"What I'm saying is it isn't working," said Randy Neugebauer, a Texas Republican.

House Financial Services Chairman Spencer Bachus said at the end of the hearing that when Bernanke returns in six months, there will be a balanced federal budget and a whole new set of questions from members, sparking widespread laughter by both Democrats and Republicans.

This was the second day of the twice annual testimony the Fed chairman gives to House and Senate panels. Bernanke testified Tuesday before the Senate Banking Committee, reading the same prepared remarks he read Wednesday.