Major world banks defend crisis response
JACKSON HOLE, Wyo. - Jean-Claude Trichet, European Central Bank president, defended his institution against criticism that it’s been too cautious in combating the deepest economic slump since the 1930s.
The policies of the world’s major central banks - led by Trichet; Ben S. Bernanke, Federal Reserve chairman; and Masaaki Shirakawa, Bank of Japan governor - were scrutinized by economists at the annual symposium in Jackson Hole last weekend sponsored by the Kansas City Fed. Economists including Nouriel Roubini, the New York University professor who predicted the financial crisis, have criticized the European Central Bank for waiting so long to cut interest rates and for supplying less stimulus than the Fed. Trichet used a 20-page paper to argue that the central bank was guided by its primary aim of delivering stable prices and by a need to revive bank lending.
“Criticizing a central bank that is acting with a steady hand for being behind the curve rather misses the point,’’ Trichet said. “A gradualist approach of this kind may be the most effective antidote to the threat to price stability.’’
The Fed in turn was faulted for its policy of keeping interest rates close to zero for an “extended period,’’ which Carl Walsh, professor at the University of California at Santa Cruz, said was “potentially inconsistent’’ with its price-stability goal. That prompted Donald Kohn, Fed vice chairman, to respond that the policy is aimed at ensuring inflation doesn’t get too low.
