By Jason Lange and Kristina Cooke
WASHINGTON/NEW YORK (Reuters) - Federal Reserve officials are paying lip service to foreign worries about their easy money policy but there are no signs this will stop them from pumping even more dollars into the U.S. economy.
U.S. officials have gotten an earful from other nations who feel they are suffering from the Fed's largesse. The expectation of a further easing in U.S. monetary policy has weakened the dollar, inflated asset prices overseas and made it harder for other countries to manage their own economies.
But a few nods to the global ramifications of their policies aside, top U.S. central bankers appear set to go their own way with fresh steps to fight stubbornly high unemployment and low inflation.
In fact, the word "global" was used just once in the central bank's latest meeting minutes, released on Tuesday, and only a handful of times in minutes from the last three years.
The Fed likes to stress it is not the world's central bank, and that other countries should use their own tools to deal with what Poland's central bank chief Marek Belka called "an ocean of liquidity".
"We are worried that capital inflows will amplify our problems, will derail our monetary policy," Belka said on Saturday.
In answer to a question on Tuesday, Kansas City Federal Reserve Bank President Thomas Hoenig -- who has dissented against the Fed's easy money policy at every chance this year, said the United States "is not an island" and the central bank needs to be aware its actions could "come back to us."
"We affect, and we are affected: this is a global economy and we can't forget that," he said.
But the Fed has a legal mandate to pursue price stability and full employment in the United States, and Hoenig was quick to point out that domestic considerations would come first.
EACH TO THEIR OWN TOOLS
"Authorities in each country have tools at their disposal if they choose to use them to address bubbles, and ultimately it's their responsibility just like bubbles in the U.S. are our responsibility," said Michael Feroli, chief U.S. economist at JPMorgan Chase.
The Fed's aim is not to drive down the dollar, but the greenback's decline is an undeniable side-effect of its actions as investors pile into higher-yielding assets overseas.
This has presented other central banks with a dilemma. Normally they would raise interest rates to stem rising prices, but that would just suck more capital in, strengthening their currencies further and making their exports uncompetitive.
"A lower dollar and a lower euro is fine for all of you, but its not fine for us," South African Finance Minister Pravin Gordhan said on the sidelines of the International Monetary Fund meetings in Washington this weekend, where global currency tensions were front and center.
"You are making us uncompetitive and we are the people sitting on the 25 percent unemployment and we need to work our way out of it."
CURRENCY WARS
Bank of England Governor Mervyn King warned that rich countries cannot afford to be insular in their thinking.
"It's not enough anymore to pretend that merely pursuing a sensible domestic policy framework will guarantee that you can generate stability," King told a panel in Washington on Monday.
Brazil has likened international exchange rate policy to a "currency war," and together with countries from South Korea to Thailand, the South American giant has set up capital controls to limit inflows of money.
But it would take a dramatic escalation of currency tensions or financial instability for the Fed to really factor foreign concerns into its policy calculus, said Paul Ballew, chief economist at Nationwide and a former Fed staffer.
"If the dollar dropped more appreciably and there were signs of more asset appreciation overseas, or a (currency) war really broke out, I think they would start signaling and start backing off," Ballew said.
"But save something like that, they'll of course take note, but the domestic problems are pretty paramount in their mind."
