Asset purchases by the US Federal Reserve do not cause rising food prices in countries such as Egypt, the central bank’s chairman Ben Bernanke said on Thursday. “I think it’s entirely unfair to attribute excess demand pressures in emerging markets to US monetary policy, because emerging markets have all the tools they need to address excess demand in those countries,” he said. Mr Bernanke’s comments are a firm retort to critics who argue that by driving down US interest rates with quantitative easing the Fed is pushing capital flows into commodities and emerging markets.
Answering questions after a speech at the National Press Club in Washington, Mr Bernanke said that rising food prices in the emerging world reflected the growing wealth of their populations and, in some countries, a failure to tackle inflation. “They can, for example, use monetary policy of their own. They can adjust their exchange rates, which is something that they’ve been reluctant to do in some cases,” Mr Bernanke said.
Global food prices hit a record high in January according to the UN Food and Agricultural Organisation.
In his speech, Mr Bernanke made one of his strongest calls yet for Congress to deal with what he called an “extraordinarily wide deficit”. “The long-term fiscal challenges confronting the nation are especially daunting because they are mostly the product of powerful underlying trends, not short-term or temporary factors,” Mr Bernanke said.
Mr Bernanke has warned about the fiscal deficit before, but his speech represents a sharper call for action on a gap that is now running at 9-10 per cent of gross domestic product. “Sustained high rates of government borrowing would both drain funds away from private investment and increase our debt to foreigners, with adverse long-run effects on US output, incomes and standards of living,” he said. He said action would not only improve growth in the long run, “but could also yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence”.