Yellen: Rate policy needs to focus on jobs, not stability

MarketWatch

Bloomberg Janet Yellen,

WASHINGTON (MarketWatch) — Federal Reserve monetary policy can focus on jobs and inflation and leave stability concerns to regulation at the moment, Federal Reserve Chairwoman Janet Yellen said on Wednesday.

“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,” Yellen said in a speech at the International Monetary Fund.

See live blog of Yellen and Lagarde discussing financial stability.

Yellen said that effective bank supervision must play the “primary role” in preventing future asset bubbles and crises.

“Monetary policy faces significant limitations as a tool to promote financial stability,” Yellen said.

In her speech, Yellen pushed back on critics who argue that the financial crisis could have been avoided if the Fed had tightened rates at a faster pace in the mid-2000s.

“A tighter monetary policy would not have increased the transparency of exotic financial instruments or ameliorated deficiencies in risk measurement and risk management within the private sector,” Yellen said.

But she said she was also mindful of the potential for low rates to take on risk and reach for yield and for the limits of regulation.

So there “may be times” that interest rates should be raised to ameliorate emerging risks, she said.

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Greg Robb is a senior reporter for MarketWatch in Washington. Follow him on Twitter @grobb2000.



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