ABC News' Mary Bruce reports: Federal Reserve Chairman Ben Bernanke said today that it was “unfair” to blame the Federal Reserve’s monetary policies for inflation in emerging markets and defended the Fed against accusations that it has contributed to the rise of global food prices, which have fueled political instability in countries like Tunisia and Egypt.
Bernanke was asked about the situation in Egypt during a rare question and answer session following a speech today at the National Press Club in Washington, D.C. He initially rejected the premise of the question, but went on to discuss food prices. “The most important development globally is the fact that the world is growing more quickly, particularly in emerging markets,” he explained. “I think it’s entirely unfair to attribute excess demand pressures in emerging markets to U.S. monetary policy because emerging markets have all the tools they need to address excess demand in those countries… It really is up to emerging markets to find the appropriate tools to balance their own growth.”
Bernanke repeated that the Fed's monetary policy is aimed at stabilizing the economy and said that no one could argue the U.S. economy was “overheated” or “growing too quickly.”
During his wide-ranging speech Bernanke defended the Fed’s controversial decision to purchase up to $600 billion in Treasury bonds in an effort to stimulate the economy. “A wide range of market indicators supports the view that the Federal Reserve's securities purchases have been effective at easing financial conditions,” he said.
Bernanke also pushed aside fears that increasing fuel prices may lead to more inflation. While Bernanke said there have been increases in “some highly visible prices,” such as gasoline, he stressed that “overall inflation remains quite low.”
On the state of the recovery, Bernanke said that the economy “appears to have strengthened in recent months,” but warned it will take several years before the nation’s high unemployment rate returns to normal levels.
“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” he said.
Bernanke warned that the federal budget was on an “unsustainable path” and said Congress must make tough decisions to reduce government borrowing and the federal deficit. “Our nation cannot reasonably expect to grow its way out of our fiscal imbalances, but a more productive economy will ease the tradeoffs that we face,” he said.
Bernanke went on to quote economist Herbert Stein saying “if something cannot go on forever, it will stop.”
“One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point,” he said. “The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.”