SAN FRANCISCO — Americans are weighed down by debt, and Europe is in crisis. So Asian nations need to step up and encourage their citizens to spend so that they can help drive global economic growth, a senior Federal Reserve official said Tuesday.
With consumer demand in the United States and other advanced economies hampered by economic troubles, “I believe it is crucial for emerging market economies, particularly in Asia, to take further steps to boost domestic demand, providing support for their own growth and that of the global economy,” Fed vice chairman Janet L. Yellen said in a speech at the Federal Reserve Bank of San Francisco’s annual Asia Economic Policy Conference.
The Fed’s No. 2 official also said that the central bank still has options to help boost the U.S. economy, though she gave no hints that any new action is imminent.
“The scope remains to provide additional accommodation,” Yellen said, which could mean offering greater clarity on future Fed policy or purchasing more securities.
In discussing the role Asia could play in a post-crisis world economy, Yellen noted that in many of the emerging Asian economic powers, most notably China, consumer spending is much lower relative to what the nation produces than in more advanced nations. If that were to change — if, for example, Chinese, Korean and Indonesian citizens began buying more goods and services — it could help help strengthen the world’s economy.
In particular, China could increase spending on social services such as education, health care and retirement benefits, Yellen said, to “spur consumption by reducing the need for precautionary household savings.”
The Chinese government could also encourage growth in its service industries, rather than maintaining its heavy support for manufacturing, she said. Products created in factories are more easily exported, whereas services — such as health care or insurance — serve domestic consumption.
China has already invested heavily in infrastructure, such as highways and railroads, and other emerging nations might consider doing the same, Yellen argued. “With low interest rates throughout the world, this would certainly seem to be a propitious time for countries to pursue productive capital investment.”
This is a crucial time for nations to work together to effect strong economic policy, Yellen said in response to a question. “It is essential for everyone’s benefit to have global economic growth at least at a moderate pace. This is a dangerous moment, and it calls for global policy cooperation.”
Yellen gave a measured assessment of the U.S. economy, saying that the nation “faces serious head winds.”
“Households are still de-leveraging, corporations are reluctant to invest, and fiscal consolidation is needed over time to place public finances on a sustainable course,” she said. Echoing comments by Fed Chairman Ben S. Bernanke in recent months, she urged Congress to consider new efforts to boost growth in the near-term even as it charts a path to reduce deficits in the longer term.