Yellen leery of using rates to address risk

By Dow Jones newswires

Ms Yellen 's comments echoed those of Bank of England Chief Economist Andrew Haldane, who told a conference in London on Wednesday that macroprudential tools — such as curbs on mortgage lending or higher bank capital requirements — should help shield the economy from financial-sector excesses. "Monetary policy can on occasions have a role to play in ensuring against these financial stability risks," he said.

Speaking to an audience at the International Monetary Fund in Washington, Ms Yellen said Wednesday she favours relying first on regulation and supervision to make the financial system more resilient to occasional bouts of turbulence, though she didn't rule out applying the monetary brakes if those tools fail. "I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns," the Fed chairwoman said.

Like Ms Yellen, he said central banks must be prepared to use higher rates as part of their defenses if needed. "Monetary policy can on occasions have a role to play in ensuring against these financial stability risks," he said.

Federal Reserve chair Janet Yellen pushed back strongly against the notion the central bank should consider raising interest rates to avoid fuelling future financial crises, in her most detailed and forceful comments on financial stability since taking the Federal Reserve's helm in February.

She also said raising rates would hurt the economy, noting that "efforts to promote financial stability through adjustments in interest rates would increase the volatility of inflation and employment. " And during a question-and-answer session with IMF Managing Director Christine Lagarde, she reiterated her message that a strong US economy is a boon to global growth.

Ms Yellen 's stance contrasts sharply with that of the Bank for International Settlements, a central bankers' forum based in Switzerland, which urged central banks in a report Sunday to consider raising rates to reduce risks of financial instability.

Read more here: Business Spectator


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