FRANKFURT (MNI) – Federal Reserve Bank Vice President Donald Kohn
said Friday that central banks need to show the will and the means to
exit non-standard measures.
Changing a central bank’s inflation target is risky, Kohn told an
audience at an event honoring outgoing ECB Vice President Lucas
Papademos.
He said that the anchoring of inflation expectations is even more
important as banks approach the zero bound of interest rates.
Exit tools are “very important” for central banks, Kohn argued.
“You need to know how are you going to raise rates [and] need to show
people that you not only have the will but also the means to do it.”
The Fed is “also developing tools to absorb reserves to back up”
any potential increase in interest rates to “make sure that it is
effective,” he explained.
“It is critical that central banks have the exit strategies in
place and are able to explain to the public that they are in place.”
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–Frankfurt bureau; +49-69-720142, frankfurt@marketnews.com
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