- Associated Press - Friday, November 19, 2010

WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke has sought to defuse criticism of the Fed’s $600 billion bond-purchase plan by arguing that it’s needed to boost the economy and reduce unemployment. But he warned that the Fed’s program can’t succeed on its own.

In his first speech since the Fed announced the program Nov. 3, Mr. Bernanke on Friday made his most forceful case yet that Congress also must provide more stimulus aid.

Without more stimulus, high unemployment could persist for years, he said. But in making that argument, Mr. Bernanke risks heightening complaints that he’s plunging the Fed into partisan politics.

He also said the global economy could falter if struggling countries abroad don’t receive sufficient support.

Mr.Bernanke made the remarks in a speech to a banking conference in Frankfurt, Germany.

The Fed’s Treasury bond-buying program is intended to invigorate the economy in part by lowering interest rates, lifting stock prices and encouraging more spending. Lower interest rates on loans would prompt companies to borrow and expand.

And higher stock prices would boost the wealth and confidence of individuals and businesses, Mr. Bernanke has suggested. The additional spending would lift incomes, profits and growth.

But the Fed’s program has triggered a barrage of criticism both within the United States and abroad.

Critics at home, including Republican leaders in Congress and some Fed officials, say they doubt the program will help the economy. They also worry it could do harm — unleashing inflation and leading to speculative buying on Wall Street.

And at a summit of world leaders in South Korea last week, China, Germany, Brazil and other countries complained that the Fed’s plan would give U.S. exporters a competitive price edge by flooding world markets with dollars. A weaker dollar makes U.S. goods more attractive to foreign buyers.

Emerging economies like Thailand and Indonesia also fear that falling Treasury yields will send money flooding their way in search of higher returns. Such emerging markets could be left vulnerable to a crash if investors later decide to pull out and move their money elsewhere.

Still, European Central Bank President Jean-Claude Trichet — who has shown no sign of following the Fed’s course of further easing policy — insisted during a panel discussion after Mr. Bernanke’s speech that he and the Fed chairman “strongly share the view that a solid strong dollar … is very important.”

The International Monetary Fund’s head, Dominique Strauss-Kahn, said he believes that “wherever it’s possible … the support to growth is still something which is absolutely necessary.”

He cited the U.S. as an example, saying the economy could pick up to 4 percent growth or slow to less than 2 percent growth, “and the consequences for the rest of the world would be huge.” Still, he also said that in general there’s a need to “restore confidence” by tackling debt problems.

Because countries are recovering from the severe global recession at different speeds, tensions among nations have risen, making it harder to find global solutions to global problems, Mr. Bernanke said. So-called emerging countries like China, Brazil and India are growing at much faster rates than “advanced” economies like the United States, Japan and Britain.

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