Federal Reserve Chairman Ben Bernanke addressed a conference sponsored by the Bank of Korea on Sunday and made several telling remarks about the future of the Fed’s monetary policies.
Bernanke emphasized the importance of developing markets to the global economy, saying, “the world economy will depend even more on them [emerging markets] to maintain strong domestic growth and economic and financial stability“.
The Fed Chief also stressed the importance of knowing when to tighten fiscal policy: “in the medium term, like the Federal Reserve and many other central banks, the Bank of Korea will have to manage its exit from accommodative policies. As is typically the case in the early stages of an economic recovery, the Bank will have to weigh the risks of a premature exit against those of leaving expansionary policies in place for too long”.
In response to the economic crisis the Federal Reserve lowered interest rates to almost zero in late 2008, and they have remained there since. Mortgage rates and other borrowing costs have also stayed historically low.
Although Bernanke did not specifically say what the Federal Reserve would do with monetary policy, it does not appear that tightening is imminent. Many economists and analysts believed that the Fed would raise rates prior to the end of 2010. It appears likely that the debt contagion in Europe will delay tightening indefinitely.
As to the future of the economy vis a vis Europe, Charles Evans, President of the Chicago Fed said: “the situation in financial markets in Europe does add uncertainty, but at the moment I look for the recovery in the U.S. to continue to improve and I don’t see any changes in my outlook”. Charles Plosser, President of the Philadelphia Fed added: “I don’t anticipate at this point that the United States in particular will see a double dip”.
How do you think recent events in Europe will affect the U.S. economy? Let us know in the comments section below.
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