Fed Rosengreen Says Low Interest Rates Pose Financial Stability Risks

Boston Fed President Eric Rosengren said on Tuesday that the era of low interest rates in the United States and elsewhere poses financial stability risks and that central bankers must factor such concerns into their decision-making.

“Monetary policy is less capable of offsetting negative shocks when rates are already low,” Rosengren said in a speech at a conference on macroprudential policy in Amsterdam jointly organized by the Dutch and Swedish central banks.

In particular, he said, the yield curve will be sensitive to the actions of policymakers when removing monetary accommodation.

“Reach-for-yield behavior can make financial intermediaries and the economy more risky,” Rosengren said. He noted financial intermediaries will need to factor in the possibility of lower rates, particularly during economic downturns, and flatter yield curves.

The Boston Fed chief did not mention the U.S. central bank’s decision to raise rates last week or the U.S. economic outlook in his prepared remarks.

Earlier, at the same conference, Fed Vice Chair Stanley Fischer warned that while the United States and other countries have taken steps to make their housing finance systems stronger, more needs to be done to prevent a future crisis.

via Reuters

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