Sept. 11 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the ``global saving glut'' is still helping to keep interest rates low, and they may not rise much in the event that the pool of excess capital dwindles in coming decades.

While theory suggests that yields, adjusted for inflation, would rise as saving diminishes, ``factors other than the saving- investment balance affect long-term interest rates,'' Bernanke said in a speech in Berlin. ``We are again reminded of the need to maintain appropriate humility in forecasting.''

Nations such as China have invested the proceeds of trade surpluses in U.S. Treasuries, driving yields lower. China has a record $1.3 trillion of foreign-exchange reserves and household savings that amount to almost one-fifth of its economy. Investors abroad hold half of Treasuries outstanding, helping drive benchmark 10-year note yields down to 4.37 percent on average in the past five years, from 6.82 percent in the 1990s.

Bernanke reiterated that U.S. current-account deficits, the flip side of surplus savings abroad, can't last ``indefinitely'' at the current magnitude. He urged an increase in domestic saving to help pare the shortfall, a process that ``will have both real and financial consequences'' though there's little sign now that the gap hurts the American economy, he said.

Bernanke didn't comment on the current outlook for the economy or interest rate policy. He said on Aug. 31 that the central bank would do what's needed to keep the credit rout from sinking the broader economy.

Risen `Somewhat'

Faster economic growth in Europe and Japan have caused longer-term interest rates to rise ``somewhat'' in recent years, along with increased volatility in financial markets, Bernanke said.

The yield on 10-year inflation-indexed Treasury securities averaged about 2.4 percent in the past few weeks, up from 1.85 percent in 2004, though still below the 4 percent level of 1999, the Fed chairman said.

``Term premiums appear recently to have risen from what may have been unsustainably low levels,'' Bernanke said. That's ``in part because of the greater recent volatility in financial markets and investors' demands for increased compensation for risk-taking,'' he added.

``Although the U.S. current account deficit is certainly not sustainable at its current level, U.S. liabilities to foreigners are not, at this point, putting an exceptionally large burden on the American economy,'' Bernanke told a conference sponsored by the Bundesbank.

`Satiated' With Dollars

Should the U.S. deficits stay near current levels, ``foreign investors would ultimately become satiated with dollar assets, and financing the deficit at a reasonable cost would become difficult,'' the Fed chief said.

The remarks reprised those of Bernanke's predecessor, Alan Greenspan, to the European Banking Congress in Frankfurt on Nov. 19, 2004. ``Given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point,'' Greenspan said at the time.

As yields on longer-term U.S. Treasuries failed to climb even as the Fed started raising interest rates in 2004 and 2005, Greenspan called the development a ``conundrum.''

Bernanke in a March 2005 speech offered an explanation: the ``global saving glut.'' A ``combination of diverse forces'' spurred emerging-market nations in particular to save more than they invest, he said. That helped explain the widening U.S. current-account gap and ``relatively low level of long-term real interest rates'' worldwide, said Bernanke, then a Fed governor.

Sticking to Theory

He's repeated that position since, telling U.S. lawmakers in March 2006 and July 2006 that he stood by the hypothesis.

China's current-account surplus swelled by $180 billion from 2004 to 2006, while the combined balance in the oil-exporting regions of the Middle East and former Soviet Union increased about $150 billion, Bernanke said today.

Bernanke is the last Fed policy maker scheduled to speak before officials meet in Washington on Sept. 18. Investors expect the central bank to lower its federal funds rate target to 4.75 percent from 5.25 percent, based on the price of rate futures on the Chicago Board of Trade.

The U.S. current-account deficit widened in 2006 to $811.5 billion, the biggest ever, or 6.2 percent of gross domestic product, from $754.8 billion the prior year, and the country needs to attract about $2.1 billion a day to fund the gap.

The shortfall has grown from $640 billion, or 5.5 percent of GDP in 2004, and $125 billion, or 1.6 percent of GDP in 1996, Bernanke said.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

Last Updated: September 11, 2007 15:19 EDT