SEOUL — It is in the “medium term” that the Federal Reserve and other central banks must exit from accommodative monetary policies, Fed chairman Ben Bernanke said Monday in South Korea.
Bernanke, in remarks prepared for a Bank of Korea conference in Seoul, said the BOK and others must balance the risks of a “premature” exit against the risks of waiting “too long” to tighten policy.
He said the timing of tightening will differ from country to country, and said it is up to each individual central bank to “carefully monitor economic developments.”
Bernanke praised South Korea and other Asian countries for learning lessons from the Asian crisis of the late 1990s, including making their exchange-rate regimes more flexible. Those changes made the recent financial crisis easier for the region to withstand, he said.
Although he steered clear of U.S. macroeconomic developments and monetary policy, his more general comments about challenges facing the host central bank and its counterparts in the West had relevance for the challenges facing the Fed in coming quarters.
His comments on the 60th anniversary of the BoK suggested that no near-term tightening is on the horizon, befitting the Federal Open Market Committee’s recently reaffirmed expectation that the federal funds rate will likely stay “exceptionally low ... for an extended period.”
“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,” said Bernanke.
“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,” he continued. “Because economic conditions vary, the appropriate timing of the exit is likely to differ across countries.”
“To guide these important decisions, each central bank will have to carefully monitor economic developments in its own jurisdiction,” Bernanke added.
— Market News International
