Federal Reserve Vice Chairman Stanley Fischer said he doesn’t see immediate risks of financial bubbles in the U.S., while raising concerns that the central bank’s policy tool kit is limited and untested.
“Banks are well capitalized and have sizable liquidity buffers, the housing market is not overheated and borrowing by households and businesses has only begun to pick up after years of decline or very slow growth,” Fischer said in a speech Friday in Boston. Still, he warned that “potential shifts of activity away from more regulated to less regulated institutions could lead to new risks.”
Fischer, 71, who leads a committee at the U.S. central bank charged with identifying asset-price bubbles and other risks to financial stability, also said he sees some scope for using interest-rate policy to combat potential threats, but doing so could come with “significant costs.”
“The limited macroprudential toolkit in the United States leads me to conclude that there may be times when adjustments in monetary policy should be discussed as a means to curb risks to financial stability,” he said at a Boston Federal Reserve Bank conference. “A more restrictive monetary policy would, all else being equal, lead to deviations from price stability and full employment.”
Created a century ago in response to recurring banking crises, the Fed has taken a renewed interest in identifying potential systemic financial threats since the global meltdown of 2008-09 pushed the U.S. into its worst recession since the Great Depression.
