10/14/2012 12:19 am ET Updated Dec 13, 2012

Ben Bernanke: Fed Policies Helping, Not Hurting, Emerging Economies

By Pedro Nicolaci da Costa

WASHINGTON, Oct 14 (Reuters) - Federal Reserve Chairman Ben Bernanke on Sunday denied the U.S. central bank's highly stimulative monetary policy hurts emerging economies, saying stronger growth in the United States bolsters global prospects as well.

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 international critics of the policy who argue that the unorthodox Fed policies weaken the U.S. dollar and boost the value of developing country currencies, 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 told an event sponsored by the Bank of Japan and the International Monetary Fund, in prepared remarks made available to reporters in Washington.

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.

When the Fed launched its second round of monetary policy stimulus, known as quantitative easing, in 2010 many finance ministers around the world accused the United States of pursuing a beggar-thy-neighbor policy.

Bernanke argued the open-ended nature of the third round of bond buys or QE3 makes the program more flexible and should make people feel more certain that economic growth, which registered a paltry 1.3 percent annual rate in the second quarter, will pick up steam.

"An easing in financial conditions and greater public confidence should help promote more rapid economic growth and faster job gains over coming quarters," said the Fed chief, a student of the Great Depression by training.

In response to the financial crisis and deep recession of 2007-2009, the Fed cut official interest rates to near zero and bought some $2.3 trillion in mortgage and U.S. Treasury securities in an effort to stimulate investment 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, on a net basis, good for the world economy 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.



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