""The countries of the world must recognise their collective responsibility for bringing about the rebalancing required to preserve global economic stability and prosperity."
November 19, 2010
Bernanke urges more US economic recovery measures
WASHINGTON: Federal Reserve chief Ben Bernanke on Thursday called for the US government to take further measures to stimulate the country's weak economic recovery and reduce high budget deficits.
Bernanke said the current tepid pace of recovery from the worst recession in decades could leave millions of workers unemployed or underemployed for many years.
"As a society, we should find that outcome unacceptable," the Fed chairman said in a prepared text for a speech he was to deliver Friday at a European central bank conference in Frankfurt.
While monetary policy was working in support of both economic recovery and price stability, there were limits to what could be achieved by the central bank alone, he said.
Bernanke stressed that the independent Fed is nonpartisan and does not make recommendations regarding specific tax and spending programmes.
"However, in general terms, a fiscal programme that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve," he said.
In his address in Germany, one of the fiercest critics of the Fed's latest stimulus move, Bernanke defended the decision to pump an extra 600 billion dollars into the financial system, essentially printing money as life support for the flagging US economy.
The second round of asset purchases, known as quantitative easing (QE2), drew sharp criticism from China, Brazil and other emerging market countries as well as in Europe, particularly Germany.
Bernanke rejected the characterisations of the Fed decision to launch another buying round of Treasury bonds as quantitative easing.
"In my view, the use of the term 'quantitative easing' to refer to the Federal Reserve's policies is inappropriate," he said.
"Quantitative easing typically refers to policies that seek to have effects by changing the quantity of bank reserves, a channel which seems relatively weak, at least in the US context."
By contrast, what the Fed plans are purchases that work by affecting the yields on the assets bought, thus lowering interest rates, he said.
In announcing the November 3 decision, the Federal Reserve's policy-setting Federal Open Market Committee said it would buy about 75 billion dollars of Treasury bonds a month through the middle of next year.
With demand slack amid the recovery, the central bank chief said the FOMC "remains unwaveringly committed to price stability."
Measures of underlying inflation have been trending downward and are currently around 1.0 per cent, which is below the rate of 2.0 per cent or slightly less that "most FOMC participants see as consistent with the Federal Reserve's mandate."
"It bears emphasising that the Federal Reserve has worked hard to ensure that it will not have any problems exiting from this programme at the appropriate time."
The Fed's support is also aimed at keeping the dollar strong to underpin the global economy, he said.
China and other critics say that QE2 is currency manipulation in disguise aimed at weakening the dollar to boost US exports, a key pillar of President Barack Obama's plan to grow the economy.
Washington has long accused China of keeping its currency undervalued to gain an export advantage at the expense of US jobs.
"The dollar's role as a safe haven during periods of market stress stems in no small part from the underlying strength and stability that the US economy has exhibited over the years," Bernanke said.
"Fully aware of the important role that the dollar plays in the international monetary and financial system, the committee (FOMC) believes that the best way to continue to deliver the strong economic fundamentals that underpin the value of the dollar, as well as to support the global recovery, is through policies that lead to a resumption of robust growth in a context of price stability in the United States."
Bernanke said the central bank's near-zero interest rates since December 2008 were not to blame for capital flows into fast-growing emerging markets in search of higher yields on investments.
"In the short term, rebalancing economic growth between the advanced and emerging market economies should remain a common objective, as a two-speed global recovery may not be sustainable," he said.
"The countries of the world must recognise their collective responsibility for bringing about the rebalancing required to preserve global economic stability and prosperity."
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