Federal Government Policy and Business

Regulation should be main tool against bubbles: Fed's Mester

Reuters: Central bankers should be aware of the potentially destabilizing effects of super-easy policy on financial systems, a top U.S. Federal Reserve official said on Monday, even if monetary policy should not be used as a main tool to prevent bubbles.

"I would opt to use the macroprudential tools as the first line of defense, since they can be more targeted to the markets and institutions where the risks are emerging," Cleveland Fed President Loretta Mester said in remarks prepared for delivery to the annual conference in of the Financial Intermediation Research Society, a group she helped found, meeting in Reykjavik, Iceland. "However, I do think that when we are making policy decisions, we should be cognizant of the linkages between our nonconventional monetary policy of an extended period of essentially zero interest rates and financial stability."

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