Tags: imf | fed | credit | crunch

IMF Warns Fed to Beware of Credit Crunches

Thursday, 06 Oct 2011 07:42 AM

The Federal Reserve and chairman Ben Bernanke are correct in keeping interest rates low and monetary policies loose but should also be aware the debt woes in Europe could spark a credit crunch in the U.S., the International Monetary Fund reports.

Loose monetary policies have included quantitative easing, which includes asset purchases from banks designed to spur investing and avoid deflation, as well as a reshuffling of the Central Bank's Treasury portfolio to keep long-term interest rates down, known as Operation Twist.

Good moves, the IMF says in a report, adding more such additional measures may be needed.
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"Monetary policy should remain supportive of growth over the next few years. The U.S. Federal Reserve's recent decision to maintain interest rates at historically low levels until at least mid-2013 and extend the maturity of its security holdings (Operation Twist) is appropriate; consideration may need to be given to further unconventional measures should the recovery weaken further."

bernanke200.jpg
Fed Chairman Ben Bernanke
(Getty Images photo)
However, Greece could default on its debts and spark a banking crisis in Europe, which could spread to the United States.

"Low interest rates will also support financial market stability, although authorities should be vigilant to bouts of illiquidity arising from financial strains in Europe."

European authorities are taking steps to shore up the financial system.
European Commissioner Olli Rehn tells the Financial Times that officials are exploring ways to pump capital into banks.

"Capital positions of European banks must be reinforced to provide additional safety margins and thus reduce uncertainty,” Rehn says.

"This should be regarded as an integral part of the EU’s comprehensive strategy to restore confidence and overcome the crisis."


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The Federal Reserve and chairman Ben Bernanke are correct in keeping interest rates low and monetary policies loose but should also be aware the debt woes in Europe could spark a credit crunch in the U.S., the International Monetary Fund reports. Loose monetary policies...
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2011-42-06
Thursday, 06 Oct 2011 07:42 AM
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