SAN FRANCISCO (Reuters) - The U.S. Federal Reserve must take into account the possibility of unintended consequences when it formulates monetary policy, a top Fed official said on Monday.
San Francisco Fed President John Williams told the National Association for Business Economics that the Fed’s supervisory authority should be the first line of defense against rising asset bubbles.
But, he said, while monetary policy is a “blunt tool” with which to fight bubbles, it should be devised with a view to balance its costs against its benefits.
Bond yields spiked after Fed Chairman Ben Bernanke in June said the Fed’s bond-buying program could end later this year. Williams said that market move suggests that there was an “emerging bubble” in the bond market, and that it was healthy that the bubble was deflated by Bernanke’s remarks.
Reporting by Ann Saphir; Editing by Chizu Nomiyama