Bernanke defends continuing low interest rates

Ben Bernanke has defended the continuing low-interest-rate policies of the US Federal Reserve and central banks in Europe, saying they are helping to boost the global economy.

The Fed governor’s comments come after some analysts have voiced concern that such low rates are cutting the value of currencies of advanced nations.

These critics say this may put the developing world at a disadvantage.

US rates have been between 0% and 0.25% since December 2008.

Mr Bernanke said: “Because stronger growth in each [advanced] economy confers beneficial spillovers to trading policies, these policies are not ‘beggar-thy-neighbour’ but rather ‘enrich-thy-neighbour’ actions.”

The US Federal Reserve has pledged to keep US interest rates at the record low level until the US unemployment rate falls below 6.5%. Last month the US unemployment rate was 7.7%.

If the currency of an advanced nation weakens against competitor exporters, including those from the developing world, it’s goods become relatively cheaper, giving it a price advantage.

Mr Bernanke was speaking at a London School of Economics discussion entitled “What should economists and policy makers learn from the financial crisis?”.

He was joined by Bank of England governor Sir Mervyn King, former US Treasury Secretary Larry Summers, and International Monetary Fund chief economist Olivier Jean Blanchard.

Mr Blanchard said the world’s financial leaders had to continue to show humility for failing to predict the financial crisis, admitting that they underestimated how “the interaction of a multitude of distortions” could affect the global financial system.