Bernanke stumps for global trade balance

WASHINGTON -- The U.S. 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 Bernanke suggested Tuesday.

So-called "global imbalances" occur when countries such as the U.S. 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, D.C.

Bernanke's scholarly speech did not address the future course of interest rates in the U.S. nor the state of the U.S. economy.

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

On Wall Street, investors also felt more confident about the prospects of a rate cut and pushed stocks up. The Dow Jones industrial average gained 180.54 points to close at 13,308.39.

For the first seven months of 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 where the 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.

The U.S.'s larger current account deficit, which includes not only monthly trade figures but also investment flows, would be helped if the country boosts savings and continues to trim its federal budget deficit, Bernanke said.

China, meanwhile, has recognized the need to increase its domestic spending and scale back its reliance on exports, Bernanke said. Those and other measures will help reduce global trade imbalances over time, he added.