Fed officials call for safeguards against the bubbles they blow

Section:

Huh? Why not just stop blowing bubbles?

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Federal Reserve Debates Tougher Regulation to Prevent Asset Bubbles

By James Politi
Financial Times, London
Saturday, October 17, 2020

Senior Federal Reserve officials are calling for tougher financial regulation to prevent the U.S. central bank's low interest-rate policies from giving rise to excessive risk-taking and asset bubbles in the markets.

The push reflects concerns that the Fed's ultra-loose monetary policy for struggling families and businesses risks becoming a double-edge sword, encouraging behaviour detrimental to economic recovery and creating pressure for additional bailouts.

... Dispatch continues below ...


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It also highlights fears at the Fed that the financial system remains vulnerable to new shocks, despite massive central bank intervention this year to stabilise markets and the economy during the pandemic.

Eric Rosengren, president of the Federal Reserve Bank of Boston, told the Financial Times that the Fed lacked sufficient tools to "stop firms and households" from taking on "excessive leverage" and called for a "rethink" on "financial stability" issues in the United States.

"If you want to follow a monetary policy ... that applies low interest rates for a long time, you want robust financial supervisory authority in order to be able to restrict the amount of excessive risk-taking occurring at the same time," he said. Otherwise "you're much more likely to get into a situation where the interest rates can be low for long but be counterproductive.

Neel Kashkari, the president of the Minneapolis Fed and a U.S. Treasury official during the global financial crisis, told the FT that stricter regulation was needed to stave off repeated market interventions by the central bank -- such as the kind made last decade and again this year. ...

... For the remainder of the report:

https://www.ft.com/content/5c2b7d15-7e37-475a-8d42-1e8e0a3b8708

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