CHICAGO (Reuters) - Charles Evans, president of the Federal Reserve Bank of Chicago, on Saturday warned against saddling the U.S. central bank with an additional mandate for financial stability when it is already having difficulty achieving its two current mandates.
It is very difficult to identify “areas of exuberance” as they are forming, Evans said on a panel sponsored by the University of Chicago’s Becker Friedman Institute for Research in Economics. He cited the Fed’s inability to predict the eventually devastating consequences of the pre-crisis housing bubble.
The Fed is already facing challenges meeting its mandates to keep employment at its maximum level and prices stable, Evans said, his wry tone eliciting laughter from the mostly student audience.
High unemployment, at 7.9 percent in October, has dogged the Fed since the Great Recession, prompting it to make unprecedented efforts to lower borrowing costs.
The Fed is very aware of the risks that keeping interest rates low for so long could create a bubble, Philadelphia Fed President Charles Plosser said, adding that it is working hard to make sure low rates don’t cause financial distortions.
Reporting by Ann Saphir; Editing by Leslie Adler