Federal Reserve Chair Janet Yellen said that concerns about financial stability shouldn't prompt a change in current monetary policy while flagging "pockets of increased risk-taking" in the financial system.
Yellen delivered a comprehensive salvo in the global debate among central bankers over whether interest rates should be a first-order tool to curb financial excess, saying supervision should be "the main line of defense" against turmoil.
"Monetary policy faces significant limitations as a tool to promote financial stability," Yellen said yesterday at the International Monetary Fund (IMF) in Washington. "Its effects on financial vulnerabilities, such as excessive leverage and maturity transformation, are not well understood and are less direct than a regulatory or supervisory approach."
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