European Debt Woes Could Hurt US, Fed Says
The Federal Reserve is closely monitoring financial turbulence in Europe as it could have repercussions for the United States and its markets, policymakers at the central bank said on Thursday.
James Bullard, president of the St. Louis Fed, argued the European crisis, which centers on worries about the high debt level of Greece and other member states, poses a threat to an otherwise improving U.S. economic outlook.
"One risk to the outlook ... is the fallout from potential sovereign debt default as conditions continue to deteriorate in Greece and other countries," Bullard told an audience at Washington University's Olin Business School.
His counterpart at the Richmond Fed, President Jeffrey Lacker, said the ongoing turmoil, which has led to deadly protests in Greece, was not affecting his outlook for the U.S. economy thus far, though it bears watching.
"They are something we're paying close attention to. It has the potential to develop into something that has noticeable effects.
But I don't see that so far," he told reporters after a speech in Richmond.
The euro and world stocks have fallen over the last three days over worries Greece's debt crisis was spreading to other weak euro zone economies. Greece is preparing to adopt harsh austerity measures as part of a European rescue package aimed at staving off a sovereign debt default.
Bullard raised the possibility of a debt restructuring, saying other countries have been through such restructurings before. "Restructuring debt, if it does come to that, you can live through it ... it's not pleasant," he said. "It does create a lot of volatility."
Strain in money markets reminiscent of those seen in the early stages of the global financial crisis, back in mid-2007, resurfaced this week on fears the euro zone crisis could choke interbank lending.
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