Fed chief: World must balance trade, investing

WASHINGTON - The United States and other countries must work together to right a skewed pattern of trade and investment around the globe, a move that would help worldwide economic stability, Federal Reserve Chairman Ben S. Bernanke suggested yesterday.

"Global imbalances" occur when countries such as the United States run up bloated trade deficits, while other countries, such as China and oil-producing nations, produce big trade surpluses. The International Monetary Fund has been leading efforts over the years to reduce lopsided trade and investment patterns.

As for prospects of fixing the problem, Bernanke said: "Signs of progress have appeared, but . . . most countries have only just begun to undertake the policy changes that will ultimately be needed."

He spoke at a conference in Berlin. Copies of his remarks were made available in Washington.

Bernanke's scholarly speech did not address the future course of interest rates in the United States or the state of the U.S. economy.

Economists increasingly believe that the Fed, at its meeting Tuesday, will slice a key interest rate, now at 5.25 percent, by at least a quarter of a percentage point to help protect the economy from the ill effects of a deepening housing slump and a credit crunch.

Worldwide long-term interest rates, which had been low for a long time, have gone up recently, "in part because of the greater recent volatility in financial markets and investors' demands for increased compensation for risk-taking," Bernanke said.

Those once unusually low long-term rates in the United States and other countries have puzzled policymakers. Former Fed Chairman Alan Greenspan - Bernanke's predecessor - once called the behavior of the low long-term rates a "conundrum." Bernanke once again said a number of factors probably influenced the low rates, including the desire of many countries to save a lot.

So far this year, the U.S. trade deficit is running at an annual rate of $711 billion, down from $758.5 billion in 2006. Last's year trade deficit marked the fifth year in a row that the trade deficit hit an all-time high.

Economists believe the trade balance will finally shrink this year as U.S. exporters benefit from strong economic growth in many countries overseas and a weaker dollar against many currencies. That makes U.S. products cheaper on foreign markets and imports more expensive for American consumers.