US Federal Reserve Chairman Ben Bernanke told a House of Representatives panel on Wednesday a top Fed priority is restoring financial calm even as “too high” inflation and weak growth threaten the economy. Bernanke, who spoke on the second of two days of semiannual monetary policy testimony, faces some congressional skepticism about a plan to backstop embattled mortgage finance enterprises Fannie Mae and Freddie Mac . The two companies own or guarantee almost half of all US mortgages and policy-makers consider them vital to any recovery of the beleaguered US housing market. Rep. Spencer Bachus, the highest ranking Republican on the House Financial Services Committee, said taxpayers should not be on the hook for losses incurred by publicly traded companies. Bachus said he was concerned about an approach “where investors reap market gains and taxpayers are stuck with the losses.” His concerns echoed those expressed by several Senators on Tuesday, raising questions about how quickly the administration can push its package of confidence-boosting measures announced Sunday through Congress. Soaring energy costs drove US consumer prices up 1.1 percent in June to an annual pace of 5.0 percent, data showed Wednesday, prompting a central bank warning and rising stagflation concerns. The monthly advance in the Labor Department's consumer price index (CPI) was the sharpest since June 1982, while a 0.3 percent rise in core CPI excluding energy and food was the strongest since January. The surprisingly stiff momentum in consumer prices exceeded analysts' consensus forecasts of a gain of 0.7 percent in headline inflation and a 0.2 percent rise in core inflation. In May, headline inflation was up 0.6 percent from April and the core rate increased 0.2 percent. On a 12-month basis, CPI was up 5.0 percent in June, the hottest annual inflation level since May 1991. Core CPI was 2.4 percent higher than in June 2007, the strongest rate since March. “Government and ultimately taxpayers should not assume responsibility for losses or indemnify private investors,” Bachus said at the panel hearing. Bernanke for the second day said the economy faces “serious difficulties,” and described strains from the deep housing slump, tight credit, and soaring energy and commodity prices. At the same time as growth falters, Bernanke is under pressure both within and outside the Fed for not fighting inflation more aggressively with higher benchmark interest rates, which stand at 2 percent. However, the Fed chairman told lawmakers on Wednesday there are “significant downside risks” to the outlook for growth, suggesting the central bank is unlikely to raise rates at its August meeting. Fresh evidence of inflationary pressures surfaced as report showed consumer prices rose in June by the biggest amount since September 2005.
