Bernanke Defends Fed Stimulus as China, Brazil Raise Concerns
TOKYO (Reuters) - Federal
Reserve Chairman Ben Bernanke said on Sunday it was far from clear that
the U.S. central bank's highly
stimulative monetar! y policy hurts
emerging economies, defending a policy raising concerns in China, Russia and
Brazil.
Bernanke has often defended
Fed actions against domestic critics,
who argue the policy of keeping interest rates near zero while ramping up asset
purchases hurts savers and risks future inflation.
But in a speech in Tokyo, Bernanke addressed critics abroad saying
stronger growth in the United States
bolsters global prospects as well, countering the likes of Brazil's Finance
Minister Guido Mantega who has labeled the Fed's
latest stimulus effort "selfish".
Critics say the Fed's
unorthodox policies weaken the U.S. dollar and boost the currencies of
developing countries, hurting their ability to export.
"It is not at all
clear that accommodative policies in advanced economies impose net costs on
emerging market economies," Bernanke said at an event sponsored by the Bank of Japan and the International
Monetary Fund. While the speech was delivered in private, the Fed provided a
text to the media.
The Fed last month
announced a new program of open-ended bond purchases that will be continued
until there is substantial improvement in labor market conditions, barring a sustained
and unexpected spike in inflation. To start off, the central bank will buy $40
billion in mortgage-backed securities per month.
"This policy not only
helps strengthen the U.S. economic recovery, but by boosting U.S. spending and
growth, it has the effect of helping support the global economy as well,"
Bernanke said.
FRIEND OR FOE
In 2010, when the Fed
launched its second round of monetary policy stimulus, known as quantitative
easing, many finance ministers around the world accused the United States of
pursuing a beggar-thy-neighbour policy.
Criticism of the current
round of bond purchases, known as QE3, has been more muted, but nonetheless
evident.
Mantega told the IMF's 188
member countries in Tokyo on Friday that the policy was "selfish" and
harming emerging markets both by stealing their share of exports and by
spurring destabilizing capital flows and currency movements.
"Advanced countries
cannot count on exporting their way out of the crisis at the expense of
emerging market economies," he told the IMF's governing panel.
"Brazil, for one, will take whatever measures it deems necessary to avoid
the detrimental effects of these spillovers."
In opening remarks at the
conference that Bernanke addressed on Sunday, IMF chief Christine Lagarde said
aggressive steps by the Fed, the European Central Bank and the Bank of Japan
were "big policy actions in the right direction."
But she took note of the
distress those policies were causing elsewhere and called for central banks to
step-up their dialogue and cooperation.
"Accommodative
monetary policies in many advanced economies are likely to entail large and
volatile capital flows to emerging economies," she said. "This could
... lead to (economic) overheating, asset price bubbles and the buildup of
financial imbalances."
Critics of the Fed's
policy, both foreign and domestic, contend it is likely to do little to help
the U.S. economy, while risking unwanted inflation.
Central banks "should
consider draining excessive liquidity injected into the market and eliminate
inflationary pressure in the long-term," People's Bank of China Governor
Zhou Xiaochuan was quoted as saying by the official state news agency Xinhua,
which cited the Journal of Public Research, a PBOC magazine.
Russia is also worried.
"Everything is getting
done, from my perspective, blindly, without regard to the consequences it could
have," Russian Finance Minister Anton Siluanov told reporters in Tokyo on
Saturday. "For now, this excess liquidity is not contributing to
inflation, but it could happen at some point ... and it could be a very serious
situation."
"NO PANACEA"
For his part, Bernanke
stressed that inflation in the United States was projected to run below the
Fed's 2 percent goal over the next few years.
And while he admitted that
QE3 was "no panacea," he argued the open-ended nature of the third round
of bond buying makes the program more flexible and should make people feel more
certain that U.S. economic growth, which registered a paltry annualized pace of
1.3 percent in the second quarter, will pick up.
"An easing in
financial conditions and greater public confidence should help promote more
rapid economic growth and faster job gains over coming quarters," Bernanke
said.
In response to the
financial crisis and deep recession of 2007-2009, the Fed cut overnight
interest rates to near zero and bought some $2.3 trillion in mortgage and U.S.
Treasury securities to try to stimulate spending and boost employment.
U.S. job growth remains
lackluster, but the unemployment rate did fall to 7.8 percent in September, its
lowest in nearly four years.
For Bernanke, what is good
for the world's largest economy is ultimately good for the world as well.
"Assessments of the
international impact of U.S. monetary policies should give appropriate weight
to their beneficial effects on global growth and stability," he said.
(Writing by Pedro Nicolaci
da Costa in Washington and Tim Ahmann in Tokyo; Additional reporting by Anna
Yukhananov in Tokyo: Editing by Neil Fullick)
It is the duty of
the Patriot to protect their country
from its
government!
Thomas Paine
