Fed should focus on China, economist says

July 11, 2008 at 12:38 PM
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COLLEGE PARK, Md., July 11 (UPI) -- A former International Trade Commission economist said the U.S. Federal Reserve Bank should focus on China's behavior with regard to oil and currency markets.

Peter Morici, currently a professor at the University of Maryland School of Business, said China's oil import subsidies and its controls on gasoline prices insulates Chinese consumers from the rising price of oil.

The Chinese also purchase dollars with the yuan. This keeps the yuan "undervalued against the dollar and boost(s) exports," Morici wrote in a recent report.

U.S. Federal Reserve Bank Chairman Ben Bernanke should focus on China, rather than "the threat of higher interest rates that would serve no positive purpose," Morici said.

"Were the Chinese yuan problem solved, the trade deficit could be cut by a third," he said.

Such a step would bump the U.S. gross domestic product "by about $300 billion to $500 billion," he said.

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