Reuters has an article Yellen drives wedge between monetary policy, financial bubbles.
Monetary policy faces “significant limitations” as a tool to counter financial stability risks, Federal Reserve Chair Janet Yellen said on Wednesday, adding that heading off the U.S. housing bubble with higher interest rates would have caused major economic damage.Weighing in on a global debate, Yellen reiterated her view that regulation – not rate policy – needs to play the lead role in combating excessive financial risk-taking.
“The potential cost … is likely to be too great to give financial stability risks a central role in monetary policy discussions,” Yellen said at an event sponsored by the International Monetary Fund.
So what should the Fed Chair do when she knows what the regulators ought to do, but she also knows there is little likelihood that they will do it? At least she is speaking out more forcefully on what they should be doing than any previous Fed Chair, including Bernanke, ever did.
It really irked me when the Fed Chair would testify before Congress and I could clearly see what he would like to have told his inquisitors, but was either to diplomatic or too afraid to tell them what they needed to hear.
It is another example of the Congress’s actions and inactions forcing the Fed to have to work at cross purposes to what Congress is doing and what they aren’t doing.