(Nov 9): Global central bankers said financial markets could suffer a bout of turbulence -- again -- when they begin to withdraw monetary stimulus.

Janet Yellen and William C. Dudley of the Federal Reserve, Mexico’s Agustin Carstens and Bank of England Governor Mark Carney were among those to use a Paris conference of policy makers yesterday to talk about potential fallout from the eventual shift from record-low interest rates used to revive growth since the global financial crisis in 2008.

“Normalization could lead to some heightened financial volatility,” Yellen told the gathering convened by the Bank of France. Carney said “the transition could be bumpy.”

The comments suggest central bankers are trying to prepare better for the global effects of any withdrawal than in 2013, when then-Chairman Ben S. Bernanke unexpectedly signaled the Fed could soon start reducing bond purchases. That pushed up yields and rattled investors worldwide in the so-called taper tantrum.

Fed Chair Yellen and Dudley, president of the Fed Bank of New York, recognized the importance of U.S. officials being clear in their plans.

“The Federal Reserve will strive to clearly and transparently communicate its monetary policy strategy in order to minimize the likelihood of surprises that could disrupt financial markets,” Yellen said.

Yesterday’s report showing a decline in U.S. unemployment to a six-year low in October and 214,000 workers added to payrolls probably keeps the Fed on track to raise interest rates next year. Fed officials last week ended monthly asset purchases that bloated the central bank’s balance sheet to more than $4 trillion.

Stability Obligation

Given a likely increase in U.S. rates next year will “undoubtedly be accompanied by some degree of market turbulence,” Dudley said the central bank has an obligation to provide global stability.

“It is clear in retrospect that our attempts in the spring of 2013 to provide guidance about the potential timing and pace of tapering confused market participants,” Dudley said.

With that episode in mind, Carstens said there is a “potential for financial market disruption” amid the unwinding of unconventional monetary policy.

Carney said shifts in financial markets were no reason to delay normalizing of policy as he reiterated that eventual U.K. rate increases will probably be “limited and gradual.”

Available Tools

Loose monetary policy is still justified, Yellen said as she urged her colleagues to “employ all available tools, including unconventional policies, to support economic growth and reach their inflation targets.”

“Given the slow and unsteady nature of the recovery, supportive policy remains necessary,” she said.

The comments on volatility were accompanied by gripes from policy makers and investors that cheap cash is increasingly coming at a greater cost. Among the worries: Stimulus has relieved pressure on governments to revamp their economies, punished savers, inflated asset bubbles and left financial markets overly reliant on liquidity.

“This is a world which places too much of a burden on central banks,” said Mohamed El-Erian, the former chief executive officer of Pacific Investment Management Co. and now an adviser to Allianz SE. “This is a journey, not a destination. If the journey lasts too long, central banks go from being part of the solution to perhaps being part of the problem.”

Government Spending

Governments should look to spend if they can and also make their economies more flexible, said International Monetary Fund Managing Director Christine Lagarde.

“All available policies should be used,” she said.

Bank of France Governor Christian Noyer said a “paramount risk of very low interest rates is to entertain the illusion that governments can continue to borrow rather than make difficult and yet necessary choices and indefinitely put off the implementation of structural reforms.”

Even so, the ECB has told its staff to prepare further measures that can be used if needed to spur inflation, and the Bank of Japan is boosting its own bond-purchase program.

BOJ Governor Haruhiko Kuroda said in Paris that his actions are complemented by a government that is committed to providing short-term fiscal support and policies to make the markets for agriculture, services and labor more flexible.

“The Bank of Japan is not the only game in town,” he said.

Market Pressure

El-Erian, a Bloomberg View columnist, said the coming divergence in monetary policies around the world when the Fed tightens and others stay easy will “place pressure” on financial markets, especially currencies. The euro is trading near a more-than two-year low against the dollar.

A possible precursor to how markets will behave when stimulus is pulled back was evident last month when stocks fell amid investor concern the global economy was faltering again and central banks lacked the ammunition to support it.

Laurence D. Fink, the chief executive of New York-based BlackRock Inc., the world’s largest money manager, said that decline was “healthy and necessary.”

It was “quite cleansing, quite important for the foundation of markets,” he said.