The Fed: Fed warned not to keep rates too low for too long

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With Fed Chairman Ben Bernanke looking on from the audience, Masaaki Shirakawa, the governor of the Bank of Japan, and Jaime Caruana, the general manager of the Bank for International Settlements, said extremely easy policy is appropriate in response to a crisis but the costs of the policy rise as time goes by. 

“While aggressive monetary easing is definitely needed after the bursting of bubbles, its side effects and limits should also be taken into consideration,” Shirakawa said. 

Caruana said that prompt action to fix bank balance sheets was the best way to end financial crises and get the economy back on its feet. 

Low interest rates can delay recognition of losses, allowing non-performing loans to remain on balance sheets. It can also undermine operating profits of the banking sector, he added.

Despite this warnings yesterday Bernanke said that the rates will keep exceptionaly low until 2014.