U.S. Treasury Secretary John Snow said on Friday he was confident the Federal Reserve will protect growth by keeping inflation in check, and denied the Bush administration was softening its strong-dollar policy.

The U.S. Treasury chief spoke to the Bond Market Association and spent an hour on CNBC television, covering an array of topics from China to foreign investment flows to whether the Bush administration was becoming less forceful about advocating a strong dollar.

I don't think so, it's the policy. It's in our interests, Snow said on CNBC. But we also say as well that currency values should be set in open, competitive currency markets, to be in line with underlying supply and demand and market forces.

Following the Group of Seven finance ministers' meeting in Washington on April 21, many analysts felt the ministers were willing to see the dollar's value decline as part of an effort to reduce global imbalances, including the U.S. trade deficit.

Snow insisted that Washington still backed a strong dollar.

It's a policy we've made clear, that Japan signed on to, the statement coming out of the G7 (finance) ministers' meetings, which said open, competitive markets are the best way to set currency values, Snow said, adding: I say our policy is the strong dollar.

At a noon address to the bond market group, which includes representatives from Wall Street's top investment firms with a strong interest in restraining inflation, Snow offered an upbeat assessment.


While it's true that headline inflation has picked up, core inflation remains in check, he said, adding that U.S. central bank policy-makers fully understood how vital it was that the rate of price rises remain under control.

I have full confidence that Chairman (Ben) Bernanke and the ... (Federal Reserve) are committed to price-stability and understand that this is their No. 1 priority, he added.

The Fed has raised short-term interest rates -- its key tool for maintaining stable prices -- 16 times since mid-2004.

In his television appearance and again before the bond group, Snow faced questions about why Treasury declined an opportunity to name China a currency manipulator when it issued a report on currency practices to Congress last week.

As he did before Congress in two earlier appearances, Snow expressed displeasure with Beijing over its tardiness in introducing more flexible, market-driven influences on its yuan currency.

But he said threats won't make China act.

We are very unhappy that the Chinese aren't moving faster. they need to move, Snow said. It's in their interests, it's in the interest of the global economy.

He said Treasury intends to hold their feet to the fire, but he felt the best chance of getting Beijing to let its yuan appreciate was through persuasion as the Bush administration is doing.


They respond better in the absence of threats than in the presence of threats, he said. The movement in the currency is more likely, given what we did than if we'd done the other.

U.S. lawmakers and manufacturers claim Beijing keeps the yuan deliberately undervalued by as much as 40 percent, making their goods so cheap for Americans that China gains an unfair advantage against U.S. competitors.

Snow said neither the United States nor other key trade partners should follow beggar-thy-neighbor currency policies. He ducked a reporter's question whether Japan was as committed

to letting market forces set its yen currency's value in accordance with market fundamentals.

Japan is a signatory to the G7 communique that says just that, that currency values are best left to competitive markets, Snow said at a brief press conference following his address to the bond group.

He noted that Japan has not intervened to affect the yen's value since march 2004.

Snow told the bond group that it was vital for the United States to remain open to foreign investment while protecting its national security -- an indirect reference to the flap earlier this year over a Dubai-owned company proposal to purchase operations in some U.S. ports.

He said overreaction on security could hurt foreign investment, which finances many American jobs.

On balance, though, Snow said he was confident that foreigners' purchases of U.S. Treasury securities will remain robust, helping finance America's deficits between its spending and income.

Snow said he thought there was only a very small risk of these inflows drying up and foreigners weren't buying U.S. government debt to be nice but for good returns.

Snow is traveling to Egypt to meet finance ministers from the Middle East and North Africa and to discuss development in the region.

(Additional reporting by Jamie McGeever and Mark Felsenthal)