Speaking at the 10th Anniversary of Luxembourg's Central Bank in Luxembourg, U.S. Vice-Chairman Donald Kohn (voter) said that although financial markets remain impaired, albeit improved, the main challenge will be restoring economic growth.
"Although we have seen signs of improvement, financial market functioning remains impaired in many ways, and we will need to continue to consider whether additional steps are needed to re-open credit flows and support the economy," he said.
He also suggested that another challenge will be how central banks will phase out liquidity operations when stability returns to the financial markets, adding that the Fed's intervention in the commercial paper market is clearly an emergency measure only.
He also said the Fed's currency swap agreements and discount window operations may become a permanent part of the Fed's arsenal.
Nevertheless, the largest debate to come will be on how to prevent further such crises from occurring, he added.
By Erik Kevin Franco and edited by Stephen Huebl
©CEP News Ltd. 2008