Normally, the second day of a Federal Reserve Chairman’s semi-annual testimony to Congress on monetary policy is anti-climactic, and with the pending fiscal sequestration getting so much attention, it seemed reasonable to expect this pattern to hold again.

However, with the bar admittedly set very low, Wednesday’s House Financial Services Committee session with Fed Chairman Ben Bernanke proved more productive than past performance indicated. Some of the members came prepared to ask searching questions, and Bernanke was in good enough form to give some meaningful and provocative answers.

As a result, some of the issues raised are worthy of further thought in an effort to figure out what the authorities, mainly the Treasury and the Fed, are likely to do and what the effects of policy will be on the economy and financial markets.

One of the forces at work is personnel changes. A new Treasury Secretary is taking office, and at the Senate Banking Committee hearing, Republicans Senators made it very clear to Chairman Tim Johnson, D-S.D., that they are eager, if not anxious, to have a session with Secretary Jack Lew, given that the confirmation hearing took place under the jurisdiction of another committee.

It now appears probable that Bernanke will be leaving in another year, and at least two financial regulators, the Securities and Exchange Commission and Commodity Futures Trading Commission, are crippled due to leadership issues. This wave of personnel change has also affected the House Financial Services Committee, as Rep. Jeb Hensarling, R-Texas, has taken over because Rep. Spencer Bachus, R-Ala., had served the six years the Republican Caucus allows, and Rep. John Campbell, R-Calif., has taken over the chairmanship of the Subcommittee on Monetary Policy and Trade, which was formerly chaired by former Rep. Ron Paul, R-Texas.

When I served on the House Banking Committee staff, I observed that the Fed would send materials to members deemed to be friendly who might be interested in using such statements and questions to bolster the Fed’s cause at the semiannual monetary policy hearings. Right or wrong, it appeared that the opening statements during Bachus’ chairmanship followed this pattern.

In contrast, Hensarling, while extending great courtesy to Bernanke, came prepared to engage him. He was prepared to raise the issue the Senate Banking Committee seemed to miss — that while the Fed may have certain expectations as to how the unwinding of quantitative easing (QE) might unfold, the Fed’s track record in making predictions as to the course of the economy is quite poor.

He referred specifically to confident predictions in 2006 that the decline in house prices would be orderly and in 2007 that the economy would have no worse than a “soft landing.” He raised the specter that the economy might now be headed for a bout of “stagflation” even worse than the Carter years.

Hensarling challenged Bernanke with quotations from Walter Bagehot as to how a central bank should behave — by lending freely at a penalty rate against good collateral. He concluded his encounter with Bernanke by pointing to widely divergent estimates of the drop in Fed profits and the possibility they could turn into losses as great as $372 billion, and he asked Bernanke to provide his own estimate, no doubt as fodder for future debate.

Campbell referred to questions raised by several members of the Federal Open Market Committee (FOMC) as to how long QE should be maintained, and he listed seven risks that he thinks the FOMC should take into account in deciding how long to maintain the accommodative policy: 1) the presence of bubbles in such assets as high-yield bonds and farmland, and in the federal deficit; 2) distortions in asset prices and difficulty in pricing risk; 3) the uncertainty created by attempts by investors to follow Fed policy while having to guess what it is; 4) the uncertainty created in financial markets by the Fed’s massive footprint; 5) the pressure on savers and retirees to take on higher risk because low returns on traditional fixed-income instruments lead them to switch to riskier vehicles, such as the stock market; 6) that every 1 percent increase in interest rates would add significantly to the deficit; and 7) the risk to the Fed’s independence of maintaining such a large balance sheet for an extended period of time.

Campbell proclaimed that he agrees with the dissenters that the Fed has gone too far with accommodation and needs to pull back now.

Campbell also complained that the main beneficiaries of the Fed’s policies seem to be U.S. and foreign governments and the largest banks. Bernanke responded that investors will benefit more from an improved economy than from one that grows too slowly and that they have seen stock and house prices go up and benefited greatly in being able to finance houses and cars by virtue of the historically low interest rates.

Rep. Maxine Waters, D-Calif., set the tone for other Democrats in praising Bernanke for leading the economic recovery through the Fed’s accommodative policy. She called the references by Republicans to dissent within the FOMC “overblown” and pointed out that despite questions that may have been raised by members of the FOMC, only one member, Kansas City Fed President Esther George, actually dissented at the last meeting.

Rep. Brad Sherman, D-Calif., repeated again the statement of Mark Zandi, chief economist of Moody’s Analytics, that house prices would have dropped a further 25 percent, with much greater job losses, if the authorities had not taken extraordinary steps to support the recovery.

The Subcommittee on Monetary Policy and Trade has scheduled a hearing for March 5 to delve further into the issues raised by the prospective unwinding of QE.