Federal Reserve Bank of Chicago President Charles Evans pushed back Tuesday against the notion that changing the ultra-easy monetary policy stance of the Federal Reserve can reduce the risk it creates financial instability.
Since March, the Fed has had its short-term interest rate target set at near-zero levels, amid guidance that rate will be in place for several years to come. At the same time, the central bank is buying about $120 billion of Treasurys and mortgage bonds each month to support markets and keep real-world borrowing costs low.
Some observers worry this ultra easy stance during an economic recovery could encourage a destabilizing round of risk taking in financial markets. For that reason, they say the Fed should prepare to pull back on some of its support.
But Mr. Evans, who will have a vote at rate-setting Federal Open Market Committee meetings this year, said monetary policy needs to focus on the economy and that Fed officials should turn to regulatory tools if they see any signs of financial sector trouble.
