Instability Shouldn't Prompt Rate Change

Yellen explains stance in global debate over central banks using interest rates to improve financial stability.

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.

About half were covenant-light, meaning they lack standard protections for lenders such as limits on debt relative to earnings, according to data compiled by Bloomberg.

Yellen said so far the Fed doesn’t see a “systemic threat” from the high-yield loan market since broad measures of credit growth don’t suggest excessive debt, and improved capital and liquidity positions at banks “should ensure resilience” against losses.

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