Fed remains wary of major interest and policy changes
July 3, 2014 1:46 amVideo
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Citing the risky downside of severely upsetting the economy, Federal Reserve Chair Janet Yellen maintained her original position yesterday of sticking to current interest rates.
In front of an audience gathered by the International Monetary Fund (IMF), Yellen expressed her views that in lieu of an extension in central bank policy, regulation must instead be utilized to stave off excessive risk taking in financial markets. The Fed reiterated that their priority goals at the moment remain to be to control inflation and further improve the labor market.
A key issue in yesterday’s discussion was the concern of a bubble forming in the US housing market and how it should be responded to. Analysts including former Fed governor Jeremy Stein hold the position that higher interest rates may prove to be effective in stemming market bubbles, a concept that the Fed top official disagreed with. The risks involved in setting the stability of financial markets as a priority in policy making, such as a climb in unemployment, may be too great for the current time, according to Yellen.
Last week, the IMF raised the issue that investors are engaging in much riskier behavior than what is advised and that lending standards are slipping on the back of the unchanging near zero US interest rates. Market bubbles are also feared to crop up with the continued rise of bonds and values of equities in the stock market that are being buoyed by the Fed’s latest measures.
It is the view of the Fed chair that low interest rates may be beneficial for other countries as well who are still stabilizing after the financial crisis or are trying to adapt to economic changes. To utilize rates properly, the bank advocated the strengthening of systems such as raising bank capital requirements which was enacted in the US.
The material has been provided by InstaForex Company – www.instaforex.com
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