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Bernanke says global recovery depends on emerging markets, central banks

Fed Chairman Ben Bernanke said central banks around the world must carefully time their exit from crisis relief programs.
Fed Chairman Ben Bernanke said central banks around the world must carefully time their exit from crisis relief programs. (Joshua Roberts/bloomberg News)
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By Tomoeh Murakami Tse
Washington Post Staff Writer
Tuesday, June 1, 2010

The global economy will depend increasingly on emerging markets to foster strong growth, Federal Reserve Chairman Ben S. Bernanke said, adding that central banks worldwide must carefully weigh the timing of their withdrawals from various economic stimulus programs put in place during the financial crisis.

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"The Federal Reserve and many other central banks . . . will have to manage its exit from accommodative policies," evaluating the risks of a premature exit against the ramifications of leaving them in place for too long, said Bernanke, addressing a conference sponsored by the Bank of Korea in Seoul by video Sunday. "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."

The Fed chief, however, gave no new insight into when his central bank might start tightening credit. Up until recently, many analysts were predicting that the central bank late this year would start raising a key interest rate that has been held near zero since December 2008. But now, with rising concerns about the impact of Europe's debt crisis on the recovering U.S. economy, more economists are expecting the Fed to sit tight until at least 2011.

Speaking on the sidelines of the Seoul conference Monday, two Fed officials gave upbeat views of the U.S. economy, saying the eurozone crisis, while clouding the outlook, is so far not big enough to throw off the U.S. recovery or impact Fed policy, according to news wire reports.

"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," said Charles Evans, president of the Federal Reserve Bank of Chicago, according to Reuters.

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said he did not see any developments in Europe as significant enough to force the central bank to change its policy, according to Reuters.

"I don't anticipate at this point that the United States in particular will see a double dip" into recession, he said, "but obviously the financial turmoil in Europe raises some clouds."

Neither Evans nor Plosser has voting rights on the Fed's interest rate-setting panel, the Federal Open Market Committee. In its latest statement on April 28, the panel said it would hold rates at the extremely low level for an "extended period."

In his remarks, Bernanke said that emerging economies have become increasingly important to the financial system and global trading, and that they "also have a key role to play in the important efforts to reduce global imbalances in trade and capital flows."

European Central Bank President Jean-Claude Trichet echoed that sentiment in his own video address to the South Korean audience.

Emerging countries were severely affected by the financial crisis, but "as a group remained a source of strength for the world economy," he said.


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