Business and Finance

Morgan Stanley Asia Ltd. Chairman Stephen Roach said U.S. policy makers should start to exit emergency stimulus measures now if the economic recovery is as strong as they say it is.

“There is never an easy time to do it,” Roach said on Bloomberg Television today. “The longer they wait, the greater the chance they sow the seeds for the next bubble. So I’m in favor of an early exit strategy.”

The Federal Reserve on Dec. 16 pledged to keep interest rates “exceptionally low” for an “extended period” even as officials said financial markets were healthy enough to allow most emergency lending programs to expire at the end of this month. Chairman Ben S. Bernanke and his fellow policy makers cut the benchmark rate almost to zero in December 2008.

“We’ve seen the most extraordinary monetary stimulus on the record in the 15, 16 months post-Lehman Brothers,” Roach said. “We’ll have to see the most extraordinary withdrawal of stimulus on record” and “if this recovery is as strong as Bernanke and markets think it is, the time to exit is now.”

Data since the Nov. 3-4 Fed meeting showed that “economic activity has continued to pick up and that the deterioration in the labor market is abating,” the Open Market Committee said in a Dec. 16 statement. “Financial market conditions have become more supportive of economic growth,” while the economy is “likely to remain weak for a time,” policy makers said free business cards.

Roach, in a separate interview on WBBR radio, also disagreed with Bernanke’s argument put forward on Jan. 3 that low central bank interest rates didn’t cause the housing bubble of the past decade.

‘Ludicrous’ Claim

“I think it’s ludicrous to think that monetary policy didn’t play any role in causing the so-called subprime crisis,” Roach said. “Bernanke is really digging in his heels here, this is a point of view that he developed as an academic when he was at Princeton.”

Roach argued during the boom that central banks should prevent asset prices from rising too far, in contrast with Fed officials including former Chairman Alan Greenspan.

Bernanke “embraced Greenspan’s philosophy in the same fashion, arguing that monetary policy should not be used to address asset bubbles, this is more of a regulatory oversight issue,” Roach said. “The regulatory oversight function failed hugely in the last seven or eight years but I would argue so did monetary policy.”

“I think we need to take a very careful look at monetary policy and central bankers who do not believe that interest rates played a role in this crisis,” he said. “I think that view is dead wrong.”

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