Bernanke Defends Fed Stimulus Plan
The Washington Post reports:
Federal Reserve Chairman Ben S. Bernanke is hitting back at the major nations that have assailed the Fed's latest actions to try to boost growth, offering a blunt argument that the steps were needed to keep the U.S. economy growing - and, by extension, to keep the global recovery on track.
But the Fed can't fix the economy alone, he argued in a speech Friday morning in Frankfurt, Germany that endorsed in the most explicit terms yet the notion that Congress should also take near-term action to address the weak economy.
In Germany, a nation that has pilloried the Fed for its decision to buy $600 billion in bonds with newly created money, Bernanke argued that the action was essential to reduce joblessness and maintain a strong dollar over the long run.
"On its current economic trajectory, the United States runs the risk of seeing millions of workers unemployed or underemployed for years," Bernanke said. "As a society, we should find that outcome unacceptable."
The Fed has drawn attacks from many quarters since its Nov. 3 decision, which was designed to lower long-term interest rates and encourage growth. The German, Chinese, Brazilian and other major governments have accused the Fed of trying to manipulate the value of the dollar, making U.S. exporters more competitive. Some Republicans in Congress have expressed deep skepticism of the move, even arguing to change the Fed's mandate so that it is no longer charged with trying to keep unemployment low.
Bernanke's speech at a European Central Bank conference amounts to a full-throated rebuttal, a departure from the reserved tone he usually uses to discuss monetary policy.
The Fed's action was justified by U.S. economic conditions, Bernanke argued. He said he expects growth will pick up next year but added that "we cannot rule out the possibility that unemployment might rise further in the near term, creating added risks for the recovery."
And strong U.S. economic growth is just what the broader world economy needs, Bernanke said. "Insufficiently supportive policies in the advanced economies could undermine the recovery not only in those economies, but for the world as a whole."
The United States needs to do more, Bernanke argued, calling for Congress and the Obama administration to take action to encourage growth. Bernanke in the past has privately supported fiscal measures such as temporary tax cuts or spending increases, and has acknowledged in congressional testimony that such policies could be helpful. But he has not previously endorsed these steps in a speech.
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