Bernanke fights for Fed independence, consumers

By Alister Bull and Mark Felsenthal

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke on Wednesday fought hard to protect the independence of the U.S. central bank and keep responsibility for consumer protection on financial products in its hands.

In a second day of testimony on the Fed's semiannual monetary policy report, Bernanke told the Senate Banking Committee that the U.S. central bank wants to shield monetary policy from political interference, but understands the need to be accountable to taxpayers.

"We do think that the Congress has the right to see how we are using taxpayer money. Where we are concerned is that the Congress would be intervening in our specific policy decisions relating to monetary policy and the economy," Bernanke said when asked about a proposal to expand audits of the Fed.

"So yes, we are quite willing to work with Congress to try to figure out exactly where the line should be," he said.

The Fed has pushed back hard against a bill that has already won sponsorship by a majority of the U.S. House of Representatives, and a companion Senate measure, that would expose monetary policy decisions to audits by the Government Accountability Office, a federal watchdog.

The central bank has argued such audits would alarm financial markets and drive U.S. borrowing costs higher as investors would come to fret politics, not economics, would drive monetary policy-making.

Some investors are already nervous that the Fed might face pressure to create money to finance record U.S. budget deficits. The Fed says these concerns would intensify if there was any move to put its policy under political sway.

Bernanke was also challenged on whether he would have the courage to raise interest rates to keep inflation at bay if the economy was still weak.