Will the Fed claim that asset bubbles are not caused by easy money?
''Ben Bernanke has called for reform of financial regulation, arguing on Sunday that it was lapses in regulatory oversight rather than loose monetary policy that stoked the US housing bubble.
The Federal Reserve chairman told the American Economic Association that exotic new mortgages and lending to borrowers who could not hope to repay their loans were chief causes of the sharp increase in home prices that ran from the late 1990s until 2006 and whose collapse hurt millions of Americans.
'All efforts should be made to strengthen our regulatory system to prevent a recurrence of the crisis, and to cushion the effects if another crisis occurs,' he said. If reforms were not 'adequate,' the Fed might be forced to tackle the next asset bubble using the 'blunt tool' of monetary policy, he said.
This year will see the Fed fighting for its vision of regulatory reform - closely allied to that of the Obama administration - which is under threat in Congress as some legislators seek to diminish the central bank's role in supervision of financial institutions and subject it to sweeping audits.
Mr Bernanke also has to wait for the Senate to confirm him as chairman for a second four-year term while heading off other measures that Fed supporters contend threaten the independence of monetary policy - all while setting policy to stimulate the economic recovery.
Mr Bernanke said that there was little evidence that low interest rates had been a large contributor to the housing bubble, one of the charges that has fuelled criticism of the Fed.''