July 02, 2014

Yellen: Policymakers closely monitoring stability

July 3, 2014 – Federal Reserve Board Chair Janet Yellen said the Fed's current focus on attaining price stability and maximum employment seems appropriate given current conditions, but she warned of an uptick in risk-taking generally that could affect financial stability.

The Fed chair, speaking Wednesday before the International Monetary Fund, said the accommodative monetary policy of recent years has contributed to low interest rates, a flat yield curve, improved conditions more broadly and a stronger labor market. These factors, she said, have led to "balance sheet repair" among households, improved financial conditions for businesses and overall strengthening in the health of the financial sector.

"Taking all of these factors into consideration, I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns," she said. "That said, I do see pockets of increased risk-taking across the financial system, and an acceleration of broadening of these concerns could necessitate a more robust macroprudential approach."

Yellen's examples of that increased risk-taking included low levels of corporate bond spreads and of indicators of expected volatility in some asset markets, a sign that some investors may not fully appreciate risks going forward. She also noted significant easing of terms in the leveraged-loan market.

The Fed chair said policy makers remain mindful of risks and their potential impact on the financial system. That means ongoing vigilance and, if needed, consideration of monetary policy adjustments and other tools to address changing conditions.