US Fed chair defends new stimulus plan

US Federal Reserve Chairman Ben Bernanke has backed the
central bank’s new $600bn 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 are due to meet in a week in South Korea, with
currencies and trade imbalances high on the agenda.

“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.