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Fed Chair says no need to change monetary policy to tackle financial stability risks

English.news.cn   2014-07-03 07:08:39

WASHINGTON, July 2 (Xinhua) -- U.S. Federal Reserve Chair Janet Yellen said Wednesday that she didn't see the need for the central bank to change current monetary policy in order to address financial stability concerns, although she acknowledged "pockets of increased risk-taking" in the financial system.

"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 (IMF). "The potential cost, in terms of diminished macroeconomic performance, is likely to be too great to give financial stability risks a central role in monetary policy decisions, at least most of the time."

Yellen reiterated her view that macroprudential policies, such as higher capital standards for banks, should be the "main line of defense" against financial stability concerns.

"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 said.

Yellen's remarks suggested that the central bank would try to build a more resilient financial system to "withstand unexpected adverse developments" rather than shifting its monetary policy to raise interest rates because of financial stability concerns.

Most economists predict that the Fed won't start raising its benchmark short-term interest rates until mid-2015, if the U.S. economy evolves as the central bank expected. But Yellen also noted that she hasn't "taken monetary policy totally off the table " as a measure to tackle significant risks.

In answering questions from IMF Managing Director Christine Lagarde, Yellen said she acknowledged the spillover effects of the U.S. central bank's monetary policy as the Fed planned to unwind its massive monetary stimulus program.

"We certainly strive to avoid harm in generating spillovers when we use monetary policy," she said, pledging to do a better job of communicating the central bank's policy intentions.

"We will try to conduct our monetary policy, to communicate about it and to conduct it in a manner that is understandable to financial markets to avoid the kinds of surprises that could cause jumps in interest rates that cause such capital flows," she said, referring to turbulence in emerging markets last summer.

Editor: Shen Qing
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