Bernanke Makes Case for Fed's Ability

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Sitting in the hot seat again, Wednesday, Federal Reserve Chairman Ben Bernanke faced tougher questions on whether the central bank has the ability to take on even more responsibility to get the economy back on track.

The Fed's move to use taxpayer money to bail out insurance giant American International Group and others, last year, outraged Americans and many lawmakers.

"Why does the Fed deserve more authority (when it failed to see this financial crisis coming)?" asked committee chairman Sen. Christopher Dodd.

"It was the failure, I believe, of the Fed to adequately supervise" that contributed to the financial meltdown," added GOP Sen. Richard Shelby.

Bernanke insisted the Fed is keeping a close watch on the economy and that high unemployment is "the most pressing issue" along with the real estate market.

He also echoed promises he made to keep interest rates at record-low levels as the country continues to bounce back from a recession.

Tuesday, Bernanke also pointed to signs that the economic decline is easing.

"The pace of decline appears to have slowed significantly and final demand and production have shown tentative signs of stabilization," he said.

Still, Bernanke warned that the job is not done yet.

"The labor market, however, has continued to weaken," he added. "Job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending."

Chairman Bernanke said Americans can expect inflation to be lower this year and remain stable over the next two years.

The Fed has put trillions into reviving the U.S. financial system in an effort to drive down mortgage rates and other consumer debt.

Eventually, however, the Fed will need to soak up that money. This will likely be done by raising its key bank lending rate and the rate it pays banks on reserve balances held at the central bank, Bernanke said.

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