President Barack Obama said the U.S. Federal Reserve’s second round of quantitative easing is designed to boost growth, not affect the value of the dollar, rebuffing charges that America is seeking a weaker exchange rate.
“This decision was not one to have an impact on the currency, on the dollar,” Obama said a day after former Fed Chairman Alan Greenspan said the nation was “pursuing a policy of currency weakening” in a Financial Times opinion piece. “It was designed to grow the economy,” the president said.
Obama’s comments also contrast with criticism of the Fed’s step by officials in China, Germany and Brazil, who have said it will depress the value of the dollar. A weaker currency could help Obama achieve his goal of doubling U.S. exports in five years by boosting the competitiveness of overseas shipments.
The U.S. faces a “huge danger” from deflation, which would be damaging to the world economy, Obama told reporters today at the close of the Group of 20 summit in Seoul, where leaders agreed to move more toward market-set currencies. He said exchanges on the Fed’s actions weren’t “central to any of the discussions” between world leaders at the two-day summit.
Fed policy makers on Nov. 3 said they will buy an additional $600 billion of Treasuries to boost growth in the world’s biggest economy, a strategy known as quantitative easing. The Fed left unchanged its pledge to keep interest rates low for an “extended period.”
“There’s some legitimate concern that we’ve had very low inflation, that a huge danger in the United States is deflation,” said Obama. “We have to be mindful of those dangers going forward because that wouldn’t be good for the United States or for the rest of the world.”
Treasury Secretary Timothy F. Geithner said yesterday that Greenspan’s assessment on U.S. policy was incorrect. “That’s not an accurate description of either the Fed’s policies or our policies and again I don’t think it’s an accurate description of what’s happening in markets today,” Geithner said in an interview with CNBC television.
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, rose for a sixth day, the longest winning streak since June, to trade at 78.305.
G-20 leaders agreed in Seoul to a framework aimed at stemming imbalances in trade and capital flows that risk roiling the global economy. Finance ministers will next year work on developing a set of early warning indicators, they said in their joint statement.
“We agreed that growth must be balanced,” Obama said in his press conference. “Second, we agreed that exchange rates must reflect economic realities.” he said.
Obama said the U.S. isn’t alone in worrying about China’s approach to their currency, known as the renminbi or yuan, and charged Chinese authorities with spending “enormous amounts of money intervening in the market to keep in undervalued.”
“The renminbi is one that’s an irritant not just to the United States but is an irritant to a lot of China’s trading partners and those who are competing with China to sell goods around the world,” he said. Obama’s meeting yesterday with Chinese President Hu Jintao was dominated by exchange rates. Today, he put his arm around his Chinese counterpart as leaders posed for a group photo.
Countries reached an agreement that “exchange rates must reflect economic realities,” Obama said, adding that the U.S. will “closely watch” the appreciation of the yuan ahead of Hu’s state visit to Washington in January.
On domestic issues, Obama said in his 40-minute press conference that extending tax cuts for wealthy Americans enacted by former President George W. Bush would be “fiscally irresponsible.” He declined to preview his strategy for dealing with congressional Republicans, with whom he will meet next week.