AMERICA’S programme of quantitative easing (QE) has stimulated the creation of up to three million jobs, Federal Reserve chairman Ben Bernanke defiantly claimed yesterday.
Facing a barrage of questioning over the controversial scheme during a testimony at the House of Representatives, Bernanke cited “credible” simulation studies that show QE boosting the economy.
Yet the outlook for America’s high levels of unemployment remains gloomy, he said.
Displaying little appetite for monetary tightening, Bernanke’s dovish comments saw the dollar drop against the euro.
The euro broke above a key $1.37 level versus the dollar, although euro buying by central banks to diversify their reserves also undermined the dollar.
“Despite recent better-than-expected data, the chairman continues to deliver the same message of caution and patience,” noted Michael Gapen of Barclays.
The ailing US labour market still risks turning cyclical unemployment into an imbedded problem, Bernanke said. “Almost half the unemployed have been out of work for over six months,” he said.
“The risk is that if it goes on long enough, it will start becoming structural as people lose their skills and their connection to the labour force.”
The monetary stimulus, including the latest phase (QE2), is recognised as only “a temporary measure that will be reversed,” he insisted, when pressed if he was monetising the federal government’s mammoth debts.
The policy is not to blame for inflation, he said, blaming price pressures on foreign demand.
“The inflation is taking place in emerging markets because that’s where the growth is, that’s where the demand is and that’s where in some cases the economies are overheating,” Bernanke said.
“Inflation made in the US is very, very low,” he said, citing core inflation in the US of only 0.7 per cent.