Ben Bernanke, the chairman of the Federal Reserve, has called on the American government to reduce the deficit and complement his purchases of American debt.
In unusually direct language, Bernanke told Congress and the presidential administration to pass a plan to reduce the deficit even as he embarks on a further round of quantitative easing.
“A fiscal programme that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce long-term structural deficits would be an important complement to the policies of the Federal Reserve,” he says. (article continues below)
He also defended America’s second round of quantitative easing and criticised China’s weak currency policy in a speech in Frankfurt, according to Bloomberg reports.
The Fed chairman said the US central bank’s monetary stimulus will aid the world economy.
He claimed the best way to underpin the dollar and support global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States.”
Countries that undervalue their currencies may eventually inhibit growth around the world and risk financial instability at home, he added.
Bernanke is confronting criticism from officials in countries including China and Brazil, who said the US decision to buy $600 billion (£400 billion) in Treasury securities has weakened the dollar and contributed to flows of capital to emerging markets.
The policy has also come under fire at home, where critics have said it risks fueling inflation and asset bubbles.
“Globally, both growth and trade are unbalanced,” Bernanke said, with economies growing at different rates.
“Because a strong expansion in the emerging market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favor of slow growth for everyone if the recovery in the advanced economies falls short.”
While Bernanke stopped short of naming China in his speech, he criticised “large, systemically important countries with persistent current account surpluses”.