STONE MOUNTAIN, Ga. - Federal Reserve Chairman Ben Bernanke Monday maintained his argument that the Fed is not engaged in "beggar thy neighbor policies," and that the aggressive monetary policy measures now being implemented by central banks in advanced economies are "mutually constructive."
Taking questions from the audience after a speech at the Atlanta Fed's Financial Markets Conference, Bernanke also said paying interest on reserves will the principal tool in the Fed's exit strategy, with sales from the Fed's swollen balance sheet not occurring until late in the process.
The Bank of Japan, under new Governor Haruhiko Kuroda, recently ditched its conservative approach in favor of more forceful measures to spur growth. Likewise Bernanke said the Fed is also conducting monetary policy that is "appropriate for domestic needs."
In addition, when taken together, the policies of the various central banks help the global economic recovery.
With most of the world's major economies far from a full recovery, their central banks are engaged in "expansionary monetary policy," Bernanke said.
"On net, that's mutually constructive, I think, that the strength of each country is providing additional support for other countries through stronger financial, or exports etc.," he added.
The Fed is currently buying $85 billion in U.S. Treasury securities and mortgage bonds to support the recovery, with its policy-setting Federal Open Market Committee vowing to do so until the outlook for labor market conditions substantially improves.
Bernanke said that when the time comes to normalize monetary conditions, the principal tool that the central bank will use is the interest rate paid on excess reserves.
"We don't contemplate at this point using asset sales in the same way that IOER is proposed to be used," he said.
"Asset sales are late in the process, and are not meant to be the principal tool of policy normalization," Bernanke emphasized.
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