The head of the Bank for International Settlements (BIS) today called for rises in interest rates, cuts in government spending and foreign exchange reforms.
Nout Wellink, chairman of the Bank for International Settlements, said easy money policies and government spending had helped strengthen an economic recovery but that the stimuli would either fade or have to be withdrawn.
He warned the world was running the risk of a market backlash.
Mr Wellink was speaking at the annual meeting for the BIS, the central bank to the world's central banks and the largest gathering of central bankers in the world.
Low rates had pressured property prices higher and driven a search for higher returns in the securities markets, he said in the text of a speech delivered to monetary officials from 110 countries.
“Arguably, this policy stimulus has also contributed to the widespread search for yield in financial markets, encouraging exceedingly accommodative financial conditions and frothy property prices,” he said.
Mr Wellink said central bankers needed to return monetary policy to a more neutral stance, which would temper risk-taking in the financial markets and restrain households from accumulating further debt.
“In the absence of timely policy action, the risk is that a more disruptive market-driven adjustment might take place further down the road,” he said.