Federal Reserve Chairman Ben S. Bernanke, barraged Thursday with lawmakers’ questions about rising foreign ownership of U.S. assets, played down fears that China held enough dollars to endanger the U.S. economy.
In his second day of Capitol Hill testimony, the new central bank chief was pressed by Senate Banking Committee members on whether the soaring U.S. trade deficit, financed by foreign borrowing, made the economy and the dollar vulnerable.
“I don’t think that the Chinese ownership of U.S. assets is so large as to put our country at risk economically,” Bernanke said, minimizing the possibility that China will suddenly dump some of its U.S. debt.
“It would be very much against their own interest to do so,” he said, ducking the question of whether these holdings gave Beijing a potential political lever over the United States.
As he did a day earlier before a House of Representatives panel, Bernanke said U.S. expansion was “on track” and implied that more interest-rate rises were needed to keep inflation at bay.
He avoided saying how many hikes might be coming.
“There are two possible mistakes. One is to go on too long and one is not to go on long enough,” he said. “It’s a very difficult balancing act.”
Bernanke said if foreign governments announced they were going to buy less U.S. debt or even sold some, it would not destabilize the economy.
“I am not aware of any significant changes in plans to hold U.S. dollar assets by foreign central banks,” he said. “My belief is moderate changes in the holding of dollar assets would not have significant impact on U.S. asset values.”
The Bush administration, as well as lawmakers, has grown increasingly frustrated with China, particularly over its reluctance to let its yuan currency rise in value to reflect its growing market power.
U.S. Treasury Secretary John W. Snow strongly hinted Thursday that the Treasury was considering naming China a currency manipulator in a report scheduled for release in April -- a step that could open China to U.S. trade retaliation.
“You always want to take market reaction into account when government makes a determination,” Snow told reporters in Chicago when asked whether top officials were privately discussing the possibility with investors.
“Prudent governments will always try and assess markets and try and prepare markets so markets aren’t disrupted,” he said.