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NEW YORK: Tighter financial regulation is needed to prevent increased risk-taking and asset bubbles in markets at a time when the Federal Reserve is keeping interest rates low, said two senior Fed officials to the Financial Times in an article published on Saturday (October 17).
Boston Fed Chairman Eric Rosengren told the newspaper that the Fed lacks sufficient tools to prevent businesses and households from adopting “excessive leverage” and called for a reconsideration of problems related to US financial stability. .
“If you want to pursue monetary policy … that applies low interest rates for a long time, you want a strong financial supervisory authority so that you can restrict the amount of excessive risk-taking that occurs at the same time,” FT quoted him as saying.
“(Otherwise) you are much more likely to get into a situation where interest rates can be low for a long time but backfire,” Rosengren said.
Minneapolis Federal Reserve Chairman Neel Kashkari said stricter regulation is needed to prevent repeated intervention in the market by the Fed.
“I don’t know what the best political solution is, but I know that we cannot continue to do what we have been doing,” he told the newspaper.
“As soon as a risk arises, everyone runs away and the Federal Reserve has to step in and rescue that market, and that’s crazy. And we have to look at it carefully,” he said.
A representative from the Boston Federal Reserve confirmed Rosengren’s remarks to the Financial Times, adding that he was interviewed on October 8. Kashkari was not immediately available to comment on the article published Saturday.
