Stricter US fiscal regulation is needed to avoid the rise in excessive risk-taking and asset bubbles in the markets at a time when the Federal Reserve is keeping interest rates down, two senior Fed officials said in an article published Saturday.
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Boston Fed President Eric Rosengren told the newspaper that the Fed lacked adequate tools to prevent businesses and households from taking on “excessive leverage”
“If you want to pursue a monetary policy … that uses low interest rates for a long time, you will have a robust financial regulator to be able to limit the amount of excessive risk-taking that happens at the same time,” FT quoted him to say.
“(Otherwise) you are much more likely to get into a situation where interest rates may be low for a long time but be counterproductive,” Rosengren said.
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Minneapolis Federal Reserve President Neel Kashkari said stricter regulation was needed to stave off repeated market interventions by the Fed.
“I do not know what the best political solution is, but I know we can not just continue to do what we have done,” he told the newspaper.
“As soon as there is a risk that hits, everyone flees, and the Federal Reserve has to step in and save the market, and that’s crazy. And we have to take a closer look,” he said.
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A Boston Federal Reserve spokesman confirmed Rosengren’s remarks to the Financial Times, adding that he was interviewed on October 8. Kashkari was not immediately available to comment on the article, which was published on Saturday.
(Reporting by Kanishka Singh; Editing by Sonya Hepinstall)