The world’s central bankers and finance ministers emerged from this weekend’s Federal Reserve annual Summer retreat in Jackson Hole, Wyoming (WY) amid growing concerns and debate in the world markets and financial centers about the outlook for a global economic recovery. One of the key issues on the agenda was whether, or not, to keep coordinated interest rates low in order to help boost world economic growth. Prolonged low interest rate environment can lead to persistent inflation if not delicately managed. Another central concern is whether the better and faster than expected rebound in China, Germany and France will dampen recovery in the U.S. and what impact this imbalance might have on international capital flows for trade and investments going forward. Central bankers warned that a global economic recovery shouldn’t delay an overhaul of financial market regulations following the worst banking crisis since World War II.
Federal Reserve Chairman Ben S. Bernanke said the global economy is beginning to emerge from recession after “aggressive” action by central banks and governments. Among other things, he noted that “Economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good,” Bernanke said in a speech at the Federal Reserve’s annual symposium in Jackson Hole, WY.
Bernanke, speaking to an audience of central bankers and academics, warned that the world still confronts “critical” challenges. The note of caution underscored the Fed’s decision last week to leave interest rates near zero for an “extended period” and to delay by a month the scheduled end to its $300 billion program to buy U.S. Treasuries.
“Strains persist in many financial markets across the globe, financial institutions face additional significant losses and many businesses and households continue to experience considerable difficulty gaining access to credit,” Bernanke said. Recovery “is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”
While economists predict the U.S. will return to growth this year, they say the jobless rate is likely to rise beyond 10 percent, restraining consumer spending and casting a cloud over the strength of the recovery.
“Economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good.” Critical challenges still exists and “Strains persist in many financial markets across the globe, financial institutions face additional significant losses and many businesses and households continue to experience considerable difficulty gaining access to credit.” Recovery “is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”
Federal Reserve Chairman Ben S. Bernanke used the weekend symposium — which began on Thursday, and ran through Sunday — to single out the creation of rules limiting risk as one of the “difficult challenges” ahead. European Central Bank President Jean-Claude Trichet said “green shoots” aren’t enough for him to declare the recovery sustainable and cautioned that officials must do “an enormous amount of work.”
Bernanke and Trichet renewed their push for changes to global finance just four weeks before leaders from the Group of 20 meet in Pittsburgh to discuss efforts to avert future financial crises. Monetary policy makers are concerned that political momentum behind creating tougher capital standards and other regulation may wane as credit markets stabilize and the global recession shows signs of easing.
