Federal Reserve Chairman Ben Bernanke has told a European audience that huge external debts were not unduly burdening the US economy now, but over time the US current account gap is unsustainable.
'The large US current account deficit cannot persist indefinitely because the ability of the United States to make debt service payments and the willingness of foreigners to hold US assets in their portfolios are both limited,' he said in remarks prepared for delivery in Berlin.
Bernanke did not discuss the outlook for the US economy or interest rates in his text, ahead of his speech .
Although some in financial markets had been looking for clues to the Fed's next move at its September 18 meeting, Bernanke stuck to his script on "global imbalances."
Most analysts expect the Fed to cut its base federal funds rate, which has been at 5.25% since June 2006, in response to economic upheaval from the US housing slump and financial market turmoil.
But there is considerable debate about whether the Fed will cut by a quarter-point, or make a more aggressive half-point move.
Bernanke's comments came after an official report showed that the US trade deficit fell marginally in July to $59.2 billion, after a revised $59.4 billion in June, the government reported today.
The Commerce Department report showed US exports rose by $3.6 billion in the month, outpacing a $3.4-billion rise in imports.
The overall result, roughly in line with Wall Street forecasts, is likely to add to US economic output in calculation of gross domestic product (GDP) for the third quarter.
The politically sensitive trade deficit with China was $23.8 billion its second highest on record after a gap of $24.4 billion in October 2006.
This was up from $21.2 billion in June and represented 40% of the total trade deficit.
