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Bernanke strongly defends Fed's actions to boost economy (and says don't call it quantitative easing)

November 19, 2010 |  9:06 am

Bernanke Frankfurt Federal Reserve Chairman Ben S. Bernanke on Friday was in Germany -- one of the centers of international opposition to the Fed's latest attempt to boost the U.S. economic recovery -- to offer a strong defense of the actions, arguing that central banks need to continue to be bold in responding to the financial crisis.

"During the crisis, central banks were creative and innovative, developing programs that played a significant role in easing financial stress and supporting economic activity," Bernanke told the Sixth European Central Bank Central Banking Conference in Frankfurt in prepared remarks for one of two addresses. "As the global financial system and national economies become increasingly complex and interdependent, novel policy challenges will continue to require innovative policy responses."

The Fed has been under fire for its plan to pump an additional $600 billion into the economy. Domestic critics have charged it risks increasing inflation, with some Republicans in Congress pushing to remove the Fed's mandate to promote full employment and have it focus solely on keeping inflation and interest rates stable.

Meanwhile, some foreign governments, including Germany, China and Brazil, have complained it will give the U.S. an economic advantage by driving down the value of the dollar.

But Bernanke said the Fed needed to act because the United States is not recovering from the global recession as fast as some other countries. He described the problem in one of his speeches  Friday as a "two-speed global recovery."

"The two-speed nature of the global recovery implies that different policy stances are appropriate for different groups of countries ... advanced economies generally need accommodative policies to sustain economic growth," he said. "In the emerging market economies, by contrast, strong growth and incipient concerns about inflation have led to somewhat tighter policies."

Bernanke criticized China and some other emerging market countries for manipulating their currencies. The criticism came in the context of defending the Fed's latest actions, which has been called "quantitative easing." Bernanke said that description technically was inaccurate.

Quantitative easing aims to change the size of bank reserves, he said. The Fed's purchases of bonds and other securities is designed to boost the economy by affecting their yields.

Whatever it's called, Bernanke said the Fed will regularly monitor the plan and "would adjust the program as needed." But at this point, he said, inflation remains low.

-- Jim Puzzanghera

 Photo: Federal Reserve Chairman Ben S. Bernanke addresses a central banking conference in Germany. Credit: Bloomberg