Jackson Hole - The heads of the US Federal Reserve,
International Monetary Fund (IMF) and OECD stepped up pressure on political
leaders on both sides of the Atlantic to shake off their inertia and tackle
urgent economic problems.
If politicians ignore their pleas - including a blunt call
from IMF chief Christine Lagarde to "act now" - the slowdown in world
growth and debt turmoil in Europe could morph into a deeper crisis, top
monetary officials and economists warned at an annual retreat here.
"I hope they listen," said Bank of Israel governor
Stanley Fischer.
Alarm over political deadlock was as obvious a backdrop to
the annual meeting of policymakers in the wilds of Wyoming as the thunderstorms
that rolled over the nearby Grand Teton peaks and dumped rain on the Jackson
Lake Lodge.
"The governance right now is not going through a very
brilliant moment, I have to say, neither in Europe nor in the United
States," Angel Gurria, who heads the multi-nation Organisation for
Economic Cooperation and Development, told Reuters.
"The signals that are coming out of the short-term
discussions is, 'We can't even agree on the time of the day, even if there's a
big clock telling us what the time of the day is'."
In the United States, the political impasse has thwarted
moves to tame massive budget deficits which brought the nation to the edge of a
debt default and cost the United States its coveted AAA credit rating from
Standard & Poor's.
In Europe, leaders are fighting over who should pay for the
sovereign debt crisis in the eurozone, which has a unified regime for monetary
policy but whose member nations run their own budget policies.
Phone calls, speeches
Lagarde, whose appearance on Saturday was a late addition
and reflected her sense of urgency, delivered a hard-hitting pitch against
braking spending too fast as nations struggle to rein in long-term budget
deficits.
She was far from alone.
The Fed has slashed US interest rates to near zero and
bought $2.3 trillion in long-term securities in an effort to kickstart the
recovery.
With monetary policy stretched to its limits, fiscal policy is now
key, Fed chairperson Ben Bernanke suggested.
"Although the issue of fiscal sustainability must
urgently be addressed, fiscal policymakers should not as a consequence
disregard the fragility of the current economic recovery," he said on
Friday.
"Fortunately the two goals of achieving fiscal
sustainability - which is the result of responsible policies set in place for
the longer term and avoiding the creation of fiscal headwinds for the
current recovery are not incompatible."
Bernanke said battling long-term joblessness in the United
States must be a top priority, and he called on the US government to put a
floor under the sagging housing market, remarks Lagarde echoed forcefully on
Saturday.
Bernanke's speech was "the shot across the bow of the
government saying, 'don't keep layering expectations on the Federal Reserve,
guys, you have a job to do'," Columbia Business School dean Glenn Hubbard
said in an interview with Reuters Insider.
"The Fed is simply saying, 'We are monitoring the
situation very carefully but would encourage the government, both parties, to
get their act together and pass a long-term fiscal strengthening package and
then perhaps short-term stimulus'."
The calls from the world's economic policy elite may give
some political cover to President Barack Obama, who faces a tough reelection
fight next year with the US unemployment rate stuck above 9%.
Obama is preparing for a speech after the September 5 Labour
Day holiday, in which he is expected to lay out proposals to boost hiring. He
is reaching out to other world leaders too.
On Saturday, Obama spoke with German Chancellor Angela
Merkel, and the White House said the two leaders vowed to act to shore up a
global recovery that now looks at risk.
A day earlier Obama had called Lagarde to talk about fiscal
policy. They agreed that the world economy needs further steps to boost growth.
Obama's potential presidential challengers, including
leading Republican candidate Mitt Romney, have repeatedly blamed Obama's
policies for impeding growth.
The US economy grew less than 1% in the first half of the
year, and has yet to return to its pre-recession size.
Europe's banks face scrutiny
In Europe, the biggest threat is a spreading sovereign debt
crisis and richer eurozone nations, chief among them Germany, have shown a
hesitancy in picking up the tab for nations on the debt-strapped periphery.
Stress tests last month exposed the degree to which European
banks are exposed to Greek and other shaky government debt, and lenders are
balking at extending credit.
Lagarde and European Central Bank president Jean-Claude
Trichet both said strengthening bank balance sheets is crucial.
"Although there is clarity on required policies, the
uncertainty created by the political stances in both Europe and the United
States poses some serious risks," Cornell University Professor Eswar
Prasad said.
"Getting the policy balance right is tricky in itself;
this adds a layer of uncertainty that will make it that much harder,"
Prasad said.