The FED may cause another crisis by not withdrawing liquidity from the U.S. economy, Morgan Stanley`s Stephen Roach said today:
"The Fed is the “weak link” among central banks and may fail to tighten monetary policy in time to stop asset bubbles from forming, Roach said at a conference in Berlin today. The Fed helped trigger the boom and then bust of the subprime mortgage market by being “quick to slash, slow to normalize” interest rates, he said.
Fed Chairman Ben S. Bernanke said Dec. 3 he doesn’t rule out using monetary policy to prevent unfounded increases in asset prices, though he said financial regulation is a better approach. Bernanke said this week the U.S. economy continues to face “formidable headwinds,” signaling the Fed will keep its benchmark interest rate near zero for an extended period.
“They need to be very early in executing their exit strategies,” Roach, a former Fed economist, told Bloomberg Television. “I take Mr. Bernanke at his word that he’s looking for an extended period of monetary accommodation, which, quite frankly, I find very worrisome in assessing the prospects of a next bubble and the next crisis.”" in Bloomberg.com
The Federal Reserve will meet today and Wednesday and will produce its statement on monetary policy. The removal of the line "rates will remain low for an extended period of time" can be a market mover.
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