Bernanke defends Fed stimulus as China, Brazil raise concerns

REUTERS

TOKYO

FEDERAL Reserve Chairman Ben Bernanke said on Sunday it was far from clear that the US central bank’s highly stimulative monetary 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 labelled the Fed’s latest stimulus effort ‘selfish’.

Critics say the Fed’s unorthodox policies weaken the US 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 programme of open-ended bond purchases that will be continued until there is substantial improvement in labour 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 US economic recovery, but by boosting US spending and growth, it has the effect of helping support the global economy as well,” Bernanke said.

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-thyneighbour 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 destabilising 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.”