MNI POLICY: Fed's Quarles: Stability Risks Not Elevated

By Jean Yung

     WASHINGTON (MNI) - Financial stability risks are not currently elevated

despite high corporate borrowing, Federal Reserve Vice Chair Randal Quarles said

Thursday, adding that such risks should not be a top consideration in the

setting of monetary policy.  

     "My own assessment is that even though business debt is elevated, at least

by some measures, overall financial stability risks are not, as the financial

sector has substantial loss absorbing capacity and is not overly reliant on

unstable short-term funding," he said in remarks prepared for a Fed conference

in Washington. 

     Macroprudential policies including through-the-cycle resilience, stress

tests, and the countercyclical capital buffer "may be better targeted to

promoting financial stability than monetary policy," he said. 

     Policymakers as yet do not fully understand the cost-benefit tradeoff and

whether monetary policy adjustments for financial stability reasons may be

appropriate at some times, he said. 

     Tightening monetary policy in response to a buildup of financial

vulnerabilities could reduce the risk of a future financial crisis, but it could

also be counterproductive, causing lower employment and potentially below target

inflation in the near term. 

     Since other tools exist to promote financial stability, the Fed should

focus on using and improving those instead. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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