Fed's Bernanke defends new economic recovery plan

Image caption,
Mr Bernanke says the Fed is not trying to create inflation

US Federal Reserve Chairman Ben Bernanke has backed the the central bank's new $600bn (£371bn) package to boost the economy.

And he has rejected fears that it may spur inflation.

Some Fed officials worry the money being pumped into the economy could create inflation or speculative bubbles in the prices of bonds or commodities.

But Mr Bernanke says the programme, unveiled on Wednesday, will not push inflation to "super ordinary" levels.


Germany, China, Brazil and South Africa have criticised the US plan, with the German Finance Minister Wolfgang Schaeuble saying it was "clueless" and would create "extra problems for the world".

China's Central Bank head Zhou Xiaochuan has urged global currency reforms, while South Africa said developing countries would suffer most.

South Africa's finance minister Pravin Gordhan warned that "developing countries, including South Africa, would bear the brunt of the US decision to open its flood gates without due consideration of the consequences for other nations."

The US policy "undermines the spirit of multilateral co-operation that G20 leaders have fought so hard to maintain during the current crisis," he said.

The heads of state and government of the G20 group of the world's leading nations is due to meet in a week in South Korea, with currencies and trade imbalances high on the agenda.

Dual mandate

"We're not in the business of trying to create inflation, our purpose is to provide additional stimulus to help the economy recover and to avoid potentially additional disinflation, which I think we all agree could also be worrisome," Mr Bernanke said at the weekend.

He said the Fed was bound by a dual mandate for low and stable prices and firm employment, and by a duty to support the economy.

"We are committed to our price stability objective," said Mr Bernanke.

"I have rejected any notion that we are going to raise inflation to a supra-normal level.

"We've had a very significant disinflation since the beginning of the crisis. We should not be satisfied with a situation where we have both a large amount of slack on the employment side and inflation which is below our generally agreed upon level and seems to be declining over time."

That, he said, was the motivation for taking the action which will see the Fed buy $600bn worth of government bonds in a bid to make loans cheaper and get Americans to spend more.

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