ARLINGTON, Va. Feb 25 The Federal Reserve's top
regulator waded into the debate over whether monetary policy
should be tightened in the face of financial stability risks,
saying on Tuesday that such a move cannot be "taken off the
Fed Governor Daniel Tarullo, the U.S. central bank's point
person on financial supervision, said that while investors are
taking on more risks in high-yield corporate bonds and leveraged
loans, for example, overall there is not now a need to change
But "in reviewing the relationship between financial
stability considerations and monetary policy, ...monetary policy
action cannot be taken off the table as a response to the
build-up of broad and sustained systemic risk," Tarullo, who has
a permanent vote on policy but rarely talks publicly about it,
told the National Association for Business Economics.
He added that further developments in supervisory tools and
measures that can affect certain forms of funding can help to
"reduce the number of occasions on which a difficult tradeoff
between financial stability considerations and near-term growth
or price stability aims will need to be made."
More than five years of near-zero Fed interest rates and
trillions of dollars in stimulative asset purchases have raised
concerns that policymakers may need to tighten policies quicker
than planned to head off risk-taking in financial markets.