Fed Chair Janet Yellen says regulation, and not rate policy, needs to play the lead role in fighting excessive financial risk-taking. Bobbi Rebell reports.
IMF Chief Christine Lagarde sat down with Fed Chair Janet Yellen. Topic one: how much monetary policy can do to address financial stability risk. SOUNDBITE: JANET YELLEN, CHAIR, U.S. FEDERAL RESERVE (ENGLISH) SAYING: "I've not taken monetary policy totally off the table as a measure to be used when financial excesses are developing because I think we have to recognize that macroprudential tools have their limitations. And there may be times when monetary policy does need to be adjusted or deployed or to lean against the wind. To me, it's not a first line of defense. But it is something that has to be actively in the mix." Lagarde asked about the impact of U.S. economic policies on other countries. Yellen defended US policy to prioritize its own agenda, but did vow to try to avoid unintended consequences. SOUNDBITE: JANET YELLEN, CHAIR, U.S. FEDERAL RESERVE (ENGLISH) SAYING: "I pledge often and will continue: 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. You know, to some extent, I think such spillovers are really unavoidable in a situation in global capital markets." The U.S. stock and bond markets have soared thanks to the Fed's accommodative policy, with the major indexes trading near record highs. But Yellen played down concerns of a bubble: SOUNDBITE: JANET YELLEN, CHAIR, U.S. FEDERAL RESERVE (ENGLISH) SAYING: "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. That said, 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." Last month, the IMF cut its growth forecast for the United States and said the economy would not reach full employment until the end of 2017, allowing interest rates to be held near zero for longer than financial markets expect.