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Gradual withdrawal

As his legacy, Bernanke is leaving behind the phasing-out of monetary stimulus measures in 2014

The changeover in the chairmanship of the Federal Reserve is always an event that attracts the attention of the financial markets, and of all those who are responsible for monitoring the economy.

On this occasion the expectation generated by the meeting of the Federal Open Market Committee (FOMC) was even more justified. Stepping down as Fed chairman is Ben Bernanke, who has made the most exceptional monetary decisions in the history of central banks. Under his mandate, monetary policy has proven itself capable of reining in and abating risks similar to those that led to the Great Depression.

Benchmark rates at 0 percent, and several rounds of “quantitative easing” — injections of liquidity — have helped the American economy to recover a certain rate of growth and, with this, satisfy the other objective assigned to the central bank: bringing down the unemployment rate. Today, the American giant’s jobless rate of 6.7 percent is viewed with certain envy by Europe, but it is seen as unsatisfactory by the Federal Reserve itself, which is committed to maintaining unchanged the target level of federal funds until the rate falls to at least to 6.5 percent.

From the Fed’s last communiqué it can be gathered that US monetary policy will follow its foreseen course during 2014. There will be a new $10 billion downscaling in monthly purchases of Treasury bonds, which will stand at $65 billion. That will be the starting point for the planned disappearance of the bond-purchasing program by the end of the year. It is reasonable to assume — and also to hope — that this plan will stay in place under the supervision of Bernanke’s successor, Janet Yellen, provided that the situation in emerging economies does not suffer any serious episodes of volatility. In any case, the Fed’s management already showed in May that it is not too proud to rectify its policies. It was then that it decided that its withdrawal of monetary stimulus measures was premature, and postponed this move for several months.

Bernanke and Yellen know that financial stability in many of the emerging countries, and the tranquility of world markets, depends on the manner in which the withdrawal of monetary stimulus measures is arranged. The emerging markets have been the first to react adversely, because some were receiving part of the excess liquidity, and may now be facing difficulties in securing financing. On Wednesday, instability lingered in the markets. The withdrawal of stimulus measures must be gradual and predictable and Wednesday’s announcement was in line with these principles.

The circumstances being faced by the euro zone and the European Central Bank are not quite the same as those in America. The economy is barely growing, inflation is too low, and the financial fragmentation in the area is symptomatic of a monetary policy that is too contained. It must be repeated: the ECB ought to take good note of the lessons that Bernanke has imparted, aimed at putting the world economy, at least in part, back on the path of sustainable growth that generates employment.

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