By Steven K. Beckner
WASHINGTON (MNI) – Federal Reserve Chairman Ben Bernanke said
Wednesday that deflation is unlikely, but if it occurs the Fed has the
tools to “reverse” it.
Bernanke, continuing to testify before the Senate Banking Committee
after presenting his semi-annual Monetary Policy Report to Congress,
also took another shot at China’s exchange rate policies.
Asked about the risk of deflation, the Fed chief acknowledged that
“forecasts are very uncertain,” but added, “I don’t view deflation as a
near-term risk to the United States.”
Bernanke observed that “there has not been very much decline in
expected inflation” and said that inflation expectations have remained
“stable” — neither rising nor falling significantly.
So he said “there is not a high probability that deflation will
become a concern.” Contrasting the U.S. to Japan, he said the latter has
lower productivity growth, a contracting labor force and bank problems.
He maintained the U.S. banking system, on the other hand, is
“strengthening.”
Nevertheless, Bernanke hastened to add, “the Federal Reserve does
have the capacity — the tools — should deflation occur, to reverse
it.”
Earlier, he had listed options the Fed for providing additional
monetary stimulus should the economy “falter.” He said the Fed could
alter its “extended period” policy guidance, cut the rate of interest it
pays on reserves and buy more assets or stop letting maturing securities
run off.
Regarding China’s policy of limiting appreciation of the yuan, he
said that the Treasury and the Fed “need to maintain a constant
dialogue” and “pressure” on the Fed to reform its exchange rate regime.
He said China’s yuan policy “distorts global trade flows” and hurts
China itself. “It makes their monetary policy less independent,” he
said.
** Market News International Washington Bureau: 202-371-2121 **
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