{"id":234995,"date":"2010-01-26T15:57:36","date_gmt":"2010-01-26T20:57:36","guid":{"rendered":"http:\/\/blogs.wsj.com\/economics\/2010\/01\/26\/ecbs-bini-smaghi-takes-veiled-swipe-at-bernanke-fed-policy\/"},"modified":"2010-01-26T15:57:36","modified_gmt":"2010-01-26T20:57:36","slug":"ecb%e2%80%99s-bini-smaghi-takes-veiled-swipe-at-bernanke-fed-policy","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/234995","title":{"rendered":"ECB\u2019s Bini Smaghi Takes Veiled Swipe at Bernanke, Fed Policy"},"content":{"rendered":"

In what could be seen as a veiled swipe at the Federal Reserve<\/strong>\u0092s \u0093extended period\u0094 language, European Central Bank executive board member Lorenzo Bini Smaghi<\/strong> warned that if rates stay low for too long, they could fuel another asset bubble.<\/p>\n

\u0093Any commitment to prolonged periods of low interest rates is risky,\u0094 Bini Smaghi said in a speech<\/a> posted on the ECB\u0092s Web site Tuesday. \u0093If the aim is to lower long-term rates, it may also encourage market participants to take substantial long positions in the fixed income market,\u0094 he said, and risk suffering heavy losses when policymakers exit from their accommodative policies.<\/p>\n

The risk of such losses \u0093may induce the central bank to further delay the exit to avoid penalizing banks,\u0094 Bini Smaghi said, which \u0093seems to be the experience of 2002-2004.\u0094<\/p>\n

\u0093As a result, interest rates may remain below the desired level for too long, fueling a possible bubble,\u0094 he said.<\/p>\n

That appears to contradict Ben Bernanke<\/strong>\u0092s recent assertion<\/a> that low interest rates during that time didn\u0092t fuel the U.S. housing bubble.<\/p>\n

Bini Smaghi\u0092s comments were posted on the first day of a two-day meeting of the Federal Reserve, where officials are expected to maintain their longstanding commitment to keep rates \u0093exceptionally low\u0085for an extended period.\u0094<\/p>\n

The ECB official\u0092s worry? That policymakers — he didn\u0092t cite any central bank in particular — will send a signal that they\u0092re less worried about exiting too late then they are exiting too early. If that\u0092s the case, market participants could expect low rates \u0093to be extended beyond what is necessary,\u0094 Bini Smaghi said.<\/p>\n

He even disputed the \u0093textbook example\u0094 of exiting too early: the US experience in 1936, largely seen as a \u0093mistake not to be repeated\u0094 since it preceded the 1937-38 recession. \u0093In fact, examining closely the 1936 episode in the U.S., it might not even be considered as an early exit,\u0094 Bini Smaghi said.<\/p>\n

\u0093The 1936 episode might be considered as an example of a badly calibrated and badly communicated exit, rather than a wrongly timed exit.\u0094<\/p>\n

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In what could be seen as a veiled swipe at the Federal Reserve\u0092s \u0093extended period\u0094 language, European Central Bank executive board member Lorenzo Bini Smaghi warned that if rates stay low for too long, they could fuel another asset bubble. \u0093Any commitment to prolonged periods of low interest rates is risky,\u0094 Bini Smaghi said in […]<\/p>\n","protected":false},"author":850,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-234995","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/234995","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/850"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=234995"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/234995\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=234995"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=234995"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=234995"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}