WASHINGTON, July 18 (UPI) -- Federal Reserve Chairman Ben Bernanke tussled with senators on how to rouse a weakening U.S. economy and was to face House lawmakers on the issue Wednesday.
Bernanke appealed to Congress for help in giving the economy a shot in the arm -- an economy in which he said he foresaw "further weakness ahead."
Sen. Chuck Schumer, D-N.Y., said Bernanke's request was politically unfeasible.
"Given the political realities, Mr. Chairman, particularly in this election year, I'm afraid the Fed is the only game in town," Schumer said. "And I would urge you to take whatever actions you think would be most helpful in supporting a stronger economic recovery."
Bernanke said the Fed hadn't "really come to a specific choice at this point."
He told the Senate Banking Committee, after delivering his semiannual report on the economy and monetary policy, the Fed was "looking for ways to address the weakness in the economy should more action be needed."
"You certainly agree that unemployment has been too high and is sticky and, despite two false starts, we're having a much rougher time than we ever imagined getting unemployment down," Schumer said.
"Yes, that's true," Bernanke said.
"So get to work, Mr. Chairman," Schumer said.
Bernanke said, "We will act in an apolitical, non-partisan manner to do what's necessary for the economy."
He said the Fed was "looking very carefully at the economy, trying to judge whether or not the loss of momentum we've seen recently is enduring and whether or not the economy is likely to continue to make progress towards lower unemployment.
"If that does not occur, obviously we have to consider additional steps," he said.
The crucial issue is "whether or not there is in fact a sustained recovery going on in the labor market or are we stuck in the mud," Bernanke said.
Republicans demanded caution on moves to stimulate growth, expressing concerns about inflation or a falling dollar.
Sen. Jim DeMint, R-S.C., argued such moves would dilute the dollar's value in international markets.
Bernanke said inflation posed little risk but deflation -- a fall in consumer prices -- was a moderate risk that he "would certainly want to react against."
"I would just ask caution," DeMint said.
A U.S. Labor Department report Tuesday said consumer prices were flat in June from the month before and up 1.7 percent from a year earlier, less than the Fed's 2 percent inflation objective.
Bernanke said if the Fed decided to take action to juice the economy, it could put off to beyond 2014 its plan to avoid short-term interest-rate increases. It could also take a step known as quantitative easing, a major bond-buying program intended to stimulate the economy.
The Fed's next policy meeting is July 31-Aug. 1. The meeting after that is Sept. 12-13, when the Fed is to update its economic forecasts and Bernanke is to hold a news conference.
Much of Bernanke's testimony involved revelations banks manipulated a key interest rate known as the London interbank offered rate, a benchmark used to help determine the borrowing costs for $750 trillion worth of financial products, including mortgages, credit cards and student loans.
At least 10 banks -- including Barclays PLC, HSBC Holdings PLC, JPMorganChase & Co. and Citigroup Inc. -- are under scrutiny.
The Libor rate is the average interest rate at which large international banks can borrow from each other.
Bernanke said the Fed responded properly in 2008 when the Federal Reserve Bank of New York learned of the manipulation by notifying British regulators, which oversee the index, and by offering suggestions for improvements.
Senators pressed him about why the Fed didn't raise a public alarm about the problems at the time.
"Isn't there a responsibility to alert the customers?" asked Sen. Jeff Merkley, D-Ore. "If you had it to do over again, would you also be alerting the customers?"
Bernanke said the problem was widely reported at the time.
In response to a similar question, he said, "The responsibility of the New York Fed was to make sure that the appropriate authorities had the information, which they did."
Bernanke was to testify before the House Banking Committee Wednesday.
House Banking Committee Chairman Spencer Bachus, R-Ala., and the panel's top Democrat, Rep. Barney Frank of Massachusetts, said they would question Bernanke about the potential effect of Libor manipulation on consumers and the financial system.