Axel Weber, chairman of the board of UBS, warned on Monday that the recent rally in financial markets could be a misleading signal as it is driven by exceptional expansionary monetary policies.
"The Cypriot developments … are a timely reminder that there's still remains of high risk, and the handling of the complexity of stabilizing banking systems and stabilizing euro area problems, is still out there. Maybe the mood that we've seen improve was too good and maybe too good to be true," Germany's former Bundesbank president said in remarks in a panel debate at the London School of Economics.
Federal Reserve Chairman Ben Bernanke defended the Fed's aggressive quantitative easing monetary policy in the panel debate, arguing that while it was aimed at helping the U.S. economic recovery, the entire global economy would benefit from a more robust U.S. outlook.
"These policies are not 'beggar-thy-neighbor' but rather are positive-sum, 'enrich-thy-neighbor' actions," Bernanke remarked.
Weber, however, cautioned about the impact of quantitative policies, which he said "seem to be larger in term of impact on currencies if they are conducted through quantitative purchases rather than short-term interest rate policies, probably because they very directly impact the securities market."
Weber showed concern about what an orderly exit from these policies will look like. He questioned whether the time that quantitative easing has bought has been used wisely by the policymakers to carry out the right reforms necessary for sustainable growth.