UBS chief Axel Weber says the U.S. economy faces trouble down the road
DAVOS, SWITZERLAND (CNNMoney)
Weber, former president of Germany's Bundesbank, said quantitative easing to pump cash into developed economies had been the right policy from 2007-2010, but it had helped create the impression that central banks were "the only game in town".
"Central banks can only do certain things," he said at the World Economic Forum in Davos, Switzerland. "Deeper issues are still there."
The Fed has indicated it intends to keep buying assets such as Treasuries in order to stimulate the economy until the labor market improves "substantially."
But even though economists predict unemployment will still be at 7.5% at the end of this year, little improved from the current 7.8% rate, they are divided on whether the Fed will stop its purchase program this year.
Weber said U.S. debates about the fiscal cliff and debt ceiling were backward. Rather than viewing the ceiling as a limit on borrowing and a requirement to find ways to bring down debt, the focus seemed to be on how to increase it
Related: Bernanke won't be back in 2014, say economists
The House of Representatives is expected to vote Wednesday on a Republican bill that would let the Treasury Department borrow new money until mid-May. President Obama will not oppose the bill, even though he would prefer a longer term debt ceiling increase, the White House said.
"This is just buying time," Weber said. "We are now living at the expense of future generations -- that's not a long-term sustainable solution."
The deal Congress struck on Jan. 1 to avert the fiscal cliff postponed difficult decisions on the debt ceiling, a series of automatic spending cuts and a 2014 budget resolution.
Central banks in the U.S., Europe and Japan have spent trillions buying government bonds to keep interest rates low and promote lending to businesses and households. Some central bankers have argued that quantitative easing is reaching the limit of its effectiveness.
"Going forward (central banks) have to answer the bigger question of how they will orderly exit from where they are now," Weber said.
First Published: January 23, 2013: 6:56 AM ET
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