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Criticism mounted over U.S. economic policy and the Federal Reserve's plan to buy $600 billion in U.S. Treasury bonds ahead of the G20 meetings, prompting U.S. President Barack Obama to defend the Fed's move (WSJ). Emerging markets, including Brazil, Argentina, and China, have expressed concern that the Fed's policy will depress the value of the U.S. dollar. At a joint news conference with Indian Prime Minister Manmohan Singh yesterday, Obama said that, although the administration doesn't comment on Fed actions, "the Fed's mandate, my mandate, is to grow our economy. And that's not just good for the United States, that's good for the world as a whole." Ma Delun, a deputy governor of the People's Bank of China, said the Fed's program would pressure emerging markets to adjust their international balance of payments (Reuters) and cause inflows of "hot money." German Chancellor Angela Merkel also criticized U.S. trade protectionism in a Financial Times interview, adding that exchange rates should "reflect the real economic strength of a country." Domestically, the Fed's move sparked criticism that the policy will fuel inflation (WashPost), especially among Republicans aligned with the Tea Party. Representative Mike Pence (R-IN), who attacked the Fed's decision, invited Kansas City Fed President Thomas Hoenig, who dissented from the action at the Fed's policy meeting last week, to address the House Republican Conference.
Analysis:
In the Financial Times, Gideon Rachman says although the central tension facing the G20 involves the United States and China, there are seven major axes that divide the world, including surplus vs. deficit countries, manipulators vs. manipulated, tighteners vs. splurgers, and democracies vs. autocracies.
The Peterson Institute's Juan Carlos Martinez Oliva says the G20 should agree to limit excessive payment balances, which would "halt the endless disputes over the right level of the equilibrium exchange rate between surplus and deficit countries."
On the Economist's Free Exchange blog, Ryan Avent discusses criticism of the Fed's quantitative easing plan by CFR's Sebastian Mallaby.
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