More stringent US financial regulation is needed to prevent an increase in risk taking and asset bubbles in markets once the Federal Reserve keeps interest rates low, two senior officials said of the Fed in the Financial Times in an article published on Saturday.
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Boston Fed President Eric Rosengren told the newspaper that the Fed lacked sufficient tools to prevent companies and households from taking “excessive leverage”; and called for rethinking issues related to US financial stability.
“If you want to follow a monetary policy … that applies low interest rates over a long period of time, you need a stable financial management authority to prevent the amount of excessive risk taking that occurs when at once, “the FT quoted him as saying.
“(Otherwise) you are more likely to get into a situation where interest rates can be low for a long time but will not be productive,” Rosengren said.
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Minneapolis Federal Reserve President Neel Kashkari said stricter regulations are needed to prevent repeated Fed market intervention.
“I don’t know what the best policy solution is, but I know we just can’t keep up with what we are doing,” he told the newspaper.
“Once a risk was reached, everyone ran away and the Federal Reserve had to step in and bail out that market, and it went crazy. And we had to examine that carefully,” he said.
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A Boston Federal Reserve representative confirmed Rosengren’s remarks to the Financial Times, adding that he was interviewed on October 8. Kashkari could not be immediately available to comment on the article published on Saturday.
(Reporting by Kanishka Singh; Editing by Sonya Hepinstall)