U.S. Fed chief sees risks from lopsided trade
BERLIN: Federal Reserve Chairman Ben S. Bernanke said Tuesday that a global “savings glut” has helped keep interest rates low, but he warned that major trade imbalances between emerging and industrial nations may prove “counterproductive” to the global economy over time.
In a largely academic speech prepared for delivery to the German Bundesbank, Bernanke said the recovery of domestic demand growth in Europe, Japan, and other parts of the industrial world had apparently fueled an increase in savings, leading to a mild increase in global real interest rates.
“My reading of recent developments is that although some of the details have changed, the fundamental elements of the global saving glut remain in place,” he said. “Most important, the emerging-market countries and oil producers remain large net suppliers of financial capital to global markets.”
Bernanke, who met with Chancellor Angela Merkel earlier in the day to discuss the U.S. mortgage market crisis and the need for greater financial market transparency, made no mention of current economic or market conditions in his prepared remarks.
The Fed is expected to consider reducing the federal funds target rate at its meeting on Sept 19, from 5.25 percent, amid mounting signs the U.S. economy may slow as the credit crunch that roiled global markets tightens.
Bernanke, in his prepared remarks, focused on external imbalances which he said had widened over the last three years, and urged that the United States work with other countries to mend the jigsaw pattern to contribute to greater economic stability.
To be sure, not everyone agrees these imbalances raise significant risks to the global economy.
For example, the U.S. deficit, although worrisome, also largely reflect the attractiveness of both the U.S. economy overall and the depth, liquidity, and legal safeguards associated with its capital markets, Bernanke said.
Current account imbalances also mitigate the risk of recession, he noted, citing the European economy, which benefited from running trade surpluses during a period of sluggish growth, and is seeing a decline now that the economy is has recovered.
On Tuesday, the European Commission reduced its forecast for growth among the 13 countries that use the euro as a result of recent turmoil in financial markets, and raised its forecast for inflation.
Last week, the European Central Bank agreed to keep interest rates unchanged instead of lifting them as previously planned. President Jean Claude Trichet recently cited the credit crunch and concerns that the U.S. economy may slow as factors that may in turn affect the mending European economy.
Bernanke said the U.S. current account deficit was “certainly not sustainable at its current level,” but U.S.liabilities to foreigners were also not a burden on the American economy.
“All that said,” Bernanke said, “the current pattern of external imbalances Д the export of capital from the developing countries to the industrial economies, particularly the United States Д may prove counterproductive over the longer term.”
