The fiscal crisis shows that the economy’s health is tied to the financial system, Federal Reserve Bank of San Francisco president Janet Yellen said yesterday.
“It is no longer obvious that setting policies to stabilize the economy on the one hand and to safeguard the financial system on the other can be cleanly separated — either in conception or implementation,” Yellen said in a speech in Hong Kong, according to prepared text released by the Fed. “This experience has important implications for both monetary and regulatory policy.”
The crisis showed the need for “stronger and more effective capital and liquidity standards,” more “oversight of risk-management practices,” and compensation that does “not create incentives that could compromise safety and soundness,” she said.
After the speech, Yellen said inflation will remain subdued “for several years,” given the slack in the economy.
