September 29, 2011
Bernanke Prepared to Act
Reserve Chairman Ben Bernanke on Wednesday signaled he is prepared to take more unconventional policy steps if the weak U.S. economy worsens too much.
Mr. Bernanke stressed that he is watching price trends very closely. "If inflation itself falls too low or inflation expectations fall too low, that would be something we'd have to respond to because we don't want deflation," Mr. Bernanke said in a question-and-answer session after a speech in Cleveland.
He didn't say he sees deflation -- or a debilitating decline in prices -- as a risk right now. Prices have actually been rising above the 2.0% comfort zone in recent months. Mr. Bernanke said inflation expectations currently indicate that price increases will average around 2% over the coming years, which is where the central bank wants to see them.
Highlighting his concern over the economy's weakness, however, Mr. Bernanke said the high unemployment rate was "a national crisis" that required attention from the White House and Congress.
"We've had close to 10% unemployment now for a number of years, and of the people who are unemployed, about 45% have been unemployed for six months or more. This is unheard of," Mr. Bernanke said.
He has shown a strong determination to do what is needed to fix a persistently weak economy. But while efforts taken to fight the financial crisis of 2008 were praised by most, the most recent steps to buy bonds to spur growth have drawn criticism from several quarters. Senior Republicans worry that future inflation is the real problem and that the central bank is only making it worse with its unorthodox moves.
He took more unconventional steps at its latest policy meeting last week. The central bank said Sept. 21 that it will sell $400 billion of its U.S. Treasury securities maturing in the next three years and replace them with longer-term bonds maturing in six to 30 years. The program is meant to drive down long-term interest rates to make borrowing cheaper. They also plan to halt the shrinkage of mortgage securities from its portfolio, a move directed at helping the housing sector.
In an apparent criticism of lawmakers in the U.S. and other developed countries, Mr. Bernanke said the nation has something to learn from the economic success story of China and other emerging-market countries.
Disciplined fiscal policies, the benefits of open trade and the need to encourage private capital formation were among the reasons the chief listed to explain the high growth rates experienced by China, India and other countries. Technological advances and education are also key factors that helped these countries perform better than the U.S. over the past decade.
"Advanced economies like the United States would do well to relearn some of the lessons from the experiences of the emerging-market economies," Mr. Bernanke said in a speech, part of the Cleveland Clinic's "Ideas for Tomorrow" series.
When talking about China, Mr. Bernanke is usually critical. He has repeatedly blasted the country for relying too much on exports for economic growth. He has warned that by keeping the value of its currency artificially low, the Asian country runs the risk of overheating its economy. This time, he shifted his focus.
While repeating his warning to China not to rely too much on trade for growth, Mr. Bernanke spent more time in his largely academic speech looking at the reasons behind the success story of China and other emerging countries.
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