U.S. Federal Reserve Chairman Ben Bernanke sparred with lawmakers Wednesday, defending his $600-billion bond-buying program as necessary to reduce the nation's high unemployment. But his most pointed comments were aimed across the Pacific at China's recent interest rate hike. In his first congressional hearing since Republicans took control of the House of Representatives last month, Bernanke applied pressure on China to raise the value of its currency.
In a hearing dominated by Republican attacks against the Federal Reserve's domestic monetary policy, Fed chief Ben Bernanke took the opportunity to give his most biting criticism yet of China's undervalued currency.
Democratic Congressman Tim Ryan opened the door by asking the Fed chief whether the undervalued renminbi was affecting the recovery in the United States.
"You still believe the Chinese are manipulating their currency, and if they are, is that fueling the inflation in China and how is the manipulation of Chinese currency affecting our ability to recover here in the United States," asked Ryan.
"The renminbi is undervalued," said Bernanke. "It would be both in our interest and in Chinese interest for them to raise the value of their currency. And it would help them with their inflation problem."
China raised its interest rates this week for the third time in four months in an effort to cool-down its fast growing economy.
Chinese consumers, who celebrated the Chinese Lunar New year this week, have been hit especially hard by rising food prices.
"The fruit price is increasing very quickly," said a Beijing resident. "I don't normally spend so much money for food during the holiday. I really feel the pressure this year, everything is getting so expensive this year."
Bernanke slammed Beijing's anti-inflation efforts as "counterproductive".
Instead of raising interest rates to bring down consumer demand, Bernanke says it would be wiser for the Chinese government to reduce exports and allow its domestic market to grow.
China has promised to allow the renminbi to appreciate but Beijing insists change must be gradual.
Critics argue China undervalues its currency to gain a competitive advantage in world markets.
"And it seems like a better strategy would be to let domestic demand be what it is and let people enjoy a higher standard of living in China and reduce their exports via a higher exchange rate," said Bernanke.
Inflation in China has risen at its fastest pace in more than two years - to about five percent.
In contrast, U.S. inflation remains well below the central bank's target of two percent, with key interest rates at record lows to encourage spending.