Tokyo : The Federal Reserve's decision to let its mortgage-debt purchase programmes end this month risks driving up home-loan rates and worsening the housing crisis, Nobel laureate Joseph Stiglitz said.
"The withdrawal of the support risks increasing the interest rate, increasing the number of foreclosures and exacerbating the strain, the stress, that American families are already facing," Stiglitz said in an interview in Tokyo. He said officials "misjudged things", and predicted foreclosures and bank failures this year will exceed the 2009 and 2008 totals.
Stiglitz said the main dangers for the global economy are that central banks will "exit too rapidly" from measures adopted during the crisis, propelled in part by an "irrational" fear among some investors that inflation will soar. The liquidity created by central banks battling the recession isn't likely to fuel consumer prices because of subdued consumer demand, he said.
The warning by the former chairman of the White House Council of Economic Advisers is a contrast with the steps being taken by the Fed and its counterparts to rein in monetary stimulus to prevent a buildup of new imbalances that could destabilise the economy.
In Asia, central banks are moving toward raising interest rates to prevent asset-price bubbles.
While Asia's economies are growing faster than those in other regions, Asia cannot make up for the shortfall in US demand, Stiglitz said. It's unlikely the global economy will return to "robust" growth anytime soon, he said.
While "double-dip" recessions tend to be rare, there is a "significant" risk of a slowdown in global growth, he said. The US economy is likely to see growth "weakening" towards the end of the year, said Stiglitz, 67, who is also former chief economist of the World Bank.
"The deeper risks I see for the global economy are continuing weakness in the American economy," said Stiglitz, who shared the Nobel Memorial Prize for Economics in 2001 with George Akerlof and Andrew Michael Spence for their "analyses of markets with asymmetric information", according to the Nobel Foundation.
Fed Chairman Ben S Bernanke and his colleagues on Tuesday confirmed that their programme to buy $1.43 trillion (Dh5.25 trillion) of mortgage-related debt will be completed by the end of March. The Fed's Open Market Committee also kept its benchmark rate target unchanged at a range of zero to 0.25 per cent and said it will remain "exceptionally low" for an "extended period".
