News Column

Yellen: Fed Policy Not The Best Tool To Promote Financial Stability

July 2, 2014

WASHINGTON (Alliance News) - The primary focus of the Federal Reserve must remain on price stability and maximum employment rather than a stable banking system, according to Janet Yellen, the nation's top central banker.

Regulation and adequate capital requirements would be more appropriate than monetary policy in curbing excesses within the financial sector, Fed Chairman Yellen told the International Monetary Fund in Washington, D.C. Wednesday morning.

"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 remarked.

"That said, I do see pockets of increased risk-taking across the financial system, and an acceleration or broadening of these concerns could necessitate a more robust macroprudential approach."

She noted that action by the Fed would not have prevented the financial meltdown of 2008.

"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.

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Source: Alliance News

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